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How to Get a Home Loan When You’re Self-employed

You’ve worked hard to build a business. No matter what stage of the process you are in right now, you know it’s taken a lot of hard work. You’re confident about your investments and the income you have. Now, you are ready to buy a home. Yet, buying a home as a self-employed individual is rarely easy to do. Traditional lenders require numerous steps to be completed before they will approve a borrower for a home loan. However, here at UMe, we have a Bank Statement Lending Program for our self-employed members to make getting a mortgage easier!

 

Are You Ready to Apply for a Loan?

For those who are self-employed, the lack of a W-2 can seem debilitating. Lenders view employment through a company as a more stable form of income, even if you have years of experience managing your finances as a self-employed individual.

Remember, it is the job of any lender to make sure you have the finances to actually make your loan payments. And, they want to be sure you are likely to be able to keep doing that throughout the lifetime of your home. This can make self-employed loans a bit more tricky.

 

Gather All of Your Documents

If you want to apply for a home loan as a self-employed individual, there are several steps you can take now that can offer you peace of mind and help you to show lenders you are well-qualified to borrow money. Every lender – no matter what type of income you have – will need to verify your income. Documentation helps the lender to verify you have the ability to repay your debts.

For an individual with an employer, providing information from the previous six months to a year is common. For those who are self-employed, it is important to look back a bit further.

Here at UMe, we’ve made it simple by requiring the following 3 documentation items:

  • 12-24 months of Business Bank Statements or Personal Bank Statements
  • A list of all of your debt (listed on your credit report)
  • Proof of self employment (business license or corporation in good standing)

Good compensating factors that will help with getting approved for a home loan when you’re self-employed are as follows:

  • Low Loan-To-Value (LTV). Your loan divided by your value equals your LTV. 80,000 divided by 100,000 = 80% LTV. Lenders will go up to 90% but anything less than 70% is ideal.
  • Good Credit Score. (640+)
  • 5+ Years in Business as self-employed.
  • Reserves of 3+ Months. (The number of months you can pay your monthly debt with the liquid funds you have on hand). Minimum is 3 months reserves but over 12 months would be ideal.

 

Prove Your Worth

It is important to prove you have the financial history, showing you make wise decisions. There are several key things you can do to help ensure you gain access to the loan you need.

Keep Business and Personal Income Separate
A good starting point is separating your personal income and expenses from your business income and expenses. It seems easy enough to do, especially if you operate a small company. However, doing this can make it harder for your lender to see what your true expenses are. Whenever possible, use a separate account to manage your business expenses, such as new equipment you buy or new inventory. Don’t use your personal credit card to do so.

Improve Your Credit Score
A low credit score will make it harder to qualify for a new home loan. While you may not have to have a perfect score, typically lenders will require more careful focus on a self-employed individual’s credit.

  • Pay down your debts.
  • Stop using credit as much as you have been.
  • Avoid opening new lines of credit.
  • Avoid late payments on your credit accounts.
  • Avoid any type of public records, such as judgments, garnishments, or bankruptcies.

 

Do your best to boost your credit score when possible. This shows you are a reliable credit user. You can learn how to improve your credit score a bit more in-depth at our UMe Blog.

 

Overwhelmed? Don’t Be. We Can Help You

It’s true that most traditional banks have many requirements to provide a self-employed individual with a home loan. It does not have to be this challenging. At UMe Credit Union, we work closely with you to make the process as easy and as streamlined as possible – from start to finish. How can we do this?

Check out our Home Loan options. You will see we offer a variety of home loans to fit just about any need. We can help you with:

  • New home purchases, including options for first time home buyers looking to invest in today’s competitive market.
  • You can also refinance your existing loan as a self-employed individual. We can tailor the terms to meet your specific needs including lower monthly payments or, in some cases, consolidating debt.
  • Choose from fixed and adjustable rate loans. We also offer VA loans and interest-only mortgages.

 

We also offer a Bank Statement Lending program. If you are self-employed, you may want to qualify for a home loan using this program. We’ll look at your 24-month average of deposits and use this information to help you to qualify for a home loan. We offer a variety of home loans with easier terms that could help you to get into the home you want easily.

 

Why a Credit Union Matters

Unlike a traditional bank, we get to know you, and you get to know us. As a result of this, we can better understand what your financial needs are. Here at UMe, we are a one-branch credit union. As such, we can create specific loans designed to meet your individual needs. This can mean:

  • Lower interest rates on home loans
  • More flexible lending terms
  • Options for all types of home purchases
  • Better overall acceptance into loans even if you are self-employed
  • Improved overall fees

Our job is to help you to finance the home of your dreams. And, along with that, we want to help you to make wise financial decisions. When you bank with us and borrow from us, you gain access to our expertise and support every step of the way to owning your home.

If you are even just thinking about buying a home now, a few months from now, or even a few years from now, come in to see us here at UMe. We can help you to create a plan to help you to get qualified for an affordable loan that is just right for your specific needs. We encourage you to learn more about the options available to you for UMe Credit Union’s self-employed home loans.

 

 

Disclaimer: U matter to Me (all of us) at UMe — and that’s why we do our best to deliver helpful information on our blog. Please note the following: (1) UMe Credit Union works hard to make certain that the information we post here is as accurate as humanly possible. But as you know, information can change and evolve quickly. While we try to update the blog on a regular basis, the content of some older posts may not be correct or up-to-date. (2) Some destinations on the World Wide Web that we link you to will exist on external websites. UMe Credit Union does not officially endorse any connected sites, nor do/did we compensate or get compensated by any entities to be featured in our posts (unless otherwise noted). (3) Everyone’s situation is unique and we advise you to consult with our personal bankers or your finance, tax, or legal professional for advice individualized to you!