3 Tips That Will Help Self-Employed Individuals Get A Home Loan

Getting a home loan has become difficult for many people; for the self-employed it has become even more challenging. People who are self-employed run into more obstacles than someone who is a contracted employee with a company. This doesn't mean that you can't get a home loan; it simply means that you may have to jump through more hoops to get it. Here are some things that you can do to improve your chances of getting qualified.

1. Don't Take Deductions For A Couple Years Before Applying For The Home

If you are a contracted employee, the lender will look at your W-2's to see how much you make. However, if you are self-employed they will base your income off your taxes. When they use your taxes they will use the AGI (adjusted gross income), not your net income. That means that even though you may be making $60,000 if you are taking deductions, you might reflect only $40,000 in income.

When you are self-employed you might be able to deduct a good deal of expenses, such as your home office, your car, your medical supplies and anything else that is related to the business. Even though this will save you money on your taxes, it will hurt your chances of getting approved. For this reason, avoid taking deductions a couple years before you buy the house; this will improve your chances.

2. Pay Off Any Debts That You Have

Debt is not good when applying for a house; it is especially hard when you are self-employed. When the lender calculates how much you can afford in a house they will compare your debts with how much you make each month. Then they will use their own equation to determine how much they think you can afford in a home. For someone who is self-employed, they might want your debt to income percentage to be even lower than someone who is a contracted employee. That means the less debt you have, the better.

3. Stay With The Same Company Or Industry If Possible

Another important factor is consistency. When a lender looks at your situation, they want to see that you are stable in your current line of work. If you opened a small retail business years ago, but now are doing plumbing, this may not reflect well. It may make it seem as though you are still bouncing around from job to job. Even if you don't have the exact same business, it should at least be in the same industry.

By doing these things, you can improve your chances of getting a home loan. Talk to a group like Guard Hill Financial Corp to learn more.


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