Self employed people are no less hard working than employees with a steady paycheck. In today’s economy, there is no guarantee that someone with a paycheck today will still be employed in 30 days, either. So, why is it so much harder for self employed people to get a mortgage?
It is hard to find a mortgage loan for self employed home seekers. However, the good news is that it isn’t impossible. The key to success is to be over-prepared.
Collect as Much Documentation as Possible
With the current downswing in the real estate market, a no doc mortgage is getting tougher to get. However, just because small business owners aren’t getting a paycheck, there is no reason they can’t provide plenty of non-traditional income documentation. 1099 forms, tax records from previous years and bank statements are all items to bring to the first meeting with a mortgage broker or local banker. Don’t forget written contracts and other solid proof of future income possibilities, as well.
Save and Save Some More
While people with a traditional job can usually buy a home with a smaller percentage down, a small business owner should be prepared to have a hefty down payment to offer. Twenty percent down will make things go more smoothly. Ideally, he or she should have an even larger down payment to offer.
Get a Job
A few small business owners are so frustrated by the red tape of applying for stated income mortgages that they decide to go back to work. Although W-2 forms or pay stubs will only account for part of the income, some bankers are more willing to take a risk on a prospective self employed loan when they know someone else is responsible for at least part of the income being documented.
Cut a Paycheck
For a small business owner who can’t find a broker willing to provide a self employed home loan, a trip to the lawyer and the tax accountant to discuss setting up a more structured company may be worthwhile. Creating a corporation that is a separate entity and collecting paychecks from the corporation involves more paperwork than a sole proprietor business model and requires a careful look at tax liabilities. However, those paychecks can sometimes help make a broker happier about a self employed mortgage loan.
Choose Non-Traditional Financing Options
Leasing with the option to buy or looking for homes that offer owner financing are two options for people who want to avoid the whole hassle of trying to qualify for self employed mortgages.
Just remember that, while it may be more difficult for a small business owner to qualify for a home mortgage, it isn’t impossible. With a little patience and persistence, most small business owners will be able to find a self employed loan.