Tips for Getting a Home Loan If You Are Self-Employed
Being self-employed offers pros and cons, but one of the cons is the effect it has on getting a loan. Lenders may hesitate giving loans to people that are self-employed, unless they can prove they have enough income to repay the loan. Here are three tips to help you get a loan if you are self-employed.
Show consistency
A lender might be more willing to give you a loan if you have had the business for five or ten years, compared to having the business for only a year or two. The length of time of a business can prove its profitability, in a sense, and it gives you time to establish consistent income.
In addition, if you can show that your income has been steadily increasing over the years, it may be another factor in your favor.
Find a lender that lets you explain
One perk of self-employment is the ability to write off expenses. Expenses reduce your income, which allows you to pay fewer taxes. The downside to this is that it reduces your income amount, and this is the amount lenders often look at when determining whether or not to approve a loan.
If you find a lender that allows you to explain this, you might be able to prove that many of these expenses did not really affect your income. For example, if you depreciated a piece of equipment your business owns, your tax return would show this expense. Depreciation is not really an exchange of cash, though, which means the lender may add this amount back in, which will cause an increase in your business income.
Work on your credit and savings
Finally, the lender will look at your credit score and your net income when making a decision about your loan. If you spend a few years taking steps to make sure your credit score is high, this could help you get a loan.
In addition, you should work on building up your savings account. Having money in the bank will be necessary for your down payment, and it will also look better to the lender, because it is a sign that you should be able to repay your loan.
If you are self-employed and want to buy a house, it is possible. To learn more about loans for self-employed individuals, contact a professional in home loans in your area. This is a great way to find out what the requirements are for a mortgage loan.
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