We all love flexible working hours while managing tasks in our unique way. Be your Boss, an enticing slogan to define the self-employed. A growing business generating vibrant profits is surely something to cheer about!
Although, being self-employed comes with its perks, but isn’t void of drawbacks either. Now, when you think of buying your dream home, here come the major challenges!
Mortgage for Self-employed: Not a Cakewalk
Your unpredictable and variable income prospects may make it difficult for you to qualify for a mortgage. Especially in countries like Canada, where 20% of income earners run their own business or have diversified professional careers, one needs to figure out simpler mortgage solutions.
With the government-mandated stress tests and stricter rules, self-employed individuals often have an additional burden of proving their stable income.
Young self-employed people are in the heavy-risk window of mortgage lenders. A higher interest rate and restricted terms can fall over you! So, you’ll have to put an extra effort and work harder to secure a desired amount of mortgage. It may sound a bit tricky, but not impossible!
How to Qualify for a Mortgage?
You are running your business, and thinking to buy a house, do plan in advance. Manage your debt, expenses and business growth in such a way to boost your chances of getting the best mortgage products available.
1.Build a Good Credit Score
You are a high-risk borrower in the eyes of the lending financial institution. And, a credit score can make or break your mortgage application. What about your personal and business credit score? Not sure about it, you can easily get it checked from different credit bureaus.
Keep in mind, having lesser existing debt can get your loan application cleared faster. So, pay off your credit card bills and lines of credit before you get your score calculated. If you succeed in establishing a good credit score, things will be much easier.
2. Put Your Documents in Place
A different set of information may be required based on whether you are a sole proprietor or a corporation. Learn to stay organized and put all your crucial documents in one place. You’ll have to submit many, to get your mortgage application approved. So, be ready with the proofs of your business, your financial statements, tax returns reflecting the true take-home income, tax notices of assessment, etc.
Also, make sure to have your taxes up to date. And yes, do have handy supporting to prove your down payment amount isn’t gifted or borrowed.
3. Net Business Income Matters
Sit with your accountant and a mortgage professional to see how lenders will view your earnings. Traditionally, business owners write off various expenses to reduce their taxable income. But, do you know this can work to your disadvantage while applying for a mortgage. Lenders calculate your debt-service ratio, and a lower net income shall negatively impact it. Keep note of it!
4. Seek Help from a Mortgage Broker
It’s not easy to navigate across lenders who offer more favourable terms for the self-employed. Therefore, getting help from an experienced and trusted mortgage broker has its obvious advantages. The one who can connect you to the most suited lender!
Self-employed workers may typically face certain hurdles while obtaining a mortgage. A lender wants to make sure that you’ll pay back your loan. So, keep intact all your important financial information.
You are assessed for three prime factors: Your Income, Net worth, and Credit score. If you keep these growing and well-maintained, it won’t be that tough to prove your financial stability. With complete preparation, perseverance, and systematic planning, you can clear all the roadblocks that come in your home-ownership way. Don’t you think so? Do share your views.