By Bill Lyons | Updated on February 5, 2024
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    If you are self-employed, you may have heard that getting a mortgage is a bit different. A mortgage for self-employed professionals does have a few extra hurdles that you need to overcome, but there are plenty of self-employed mortgage loans available.

    If you are interested in learning more about self-employed loans, you may be wondering what types of options are available. Read this to learn more about loans for self-employed professionals below, and do not hesitate to reach out to a professional who can help you.

    Can You Get a Mortgage If You’re Self-Employed?

    Yes, even if you are self-employed, there are plenty of options available when it comes to getting a mortgage. It is true that many traditional lenders may put you through some additional steps, but there are plenty of loans for self-employed professionals out there, and you should have a variety of choices. That way, you can still compare the benefits and drawbacks of each option before you make a decision.

    If you are interested in taking out self-employed mortgage loans, you need to reach out to lenders as early as possible. If they are aware that you are self-employed, they can customize your process to meet your specific needs, increasing your chances of getting approved.

    Even though it can be tricky to get a mortgage if you are self-employed, it can certainly be done as long as you have the right resources.

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    Is It Difficult to Get a Mortgage If You’re Self-Employed?

    It is not necessarily difficult to get a mortgage if you’re self-employed, but every situation is different. In general, traditional lenders often place many barriers along the path to home loan approval for self-employed individuals. 

    If you are a W-2 employee, the lender knows that there is a set amount of money that is going to go into your account every month. In their eyes, this reduces the amount of risk they have to take on, which makes it easier for them to approve that applicant for a mortgage. That is why a mortgage for self-employed individuals can sometimes be seen as difficult.

    In addition, business expenses can be a hurdle if you are interested in self-employed loans. For example, if you are self-employed, you may be able to deduct your business expenses from your taxes. This is great because it can help you save money on your taxes, but it also reduces your taxable income. This is an important metric that lenders look at before deciding whether to approve you for a mortgage, so this is another issue you will have to account for.

    With these important points in mind, there are several options that you can take advantage of if you are interested in taking out a mortgage as a self-employed individual.

    Types of Loans for Self-Employed People

    If you want to get a mortgage as a freelancer, a contractor, or a small business owner, there are several options that you may want to explore. They include:

    • Asset-based loans: While most loans will ask you to verify your income to qualify for a mortgage, an asset-based loan allows you to qualify for a mortgage using your assets instead of your income. For example, you might not have a significant income because you are retired or self-employed, but, if you still have plenty of assets, you should be able to qualify for a mortgage. A professional can work with you to figure out which assets you would like to tie to a home loan to help you reduce the interest rate and increase your chances of being approved.
    • Bank statement loans: A bank statement loan allows you to qualify for a home loan using only your bank statements instead of tax returns. You will be asked to provide bank statements going back a specific number of months to prove that you have the ability to repay the loan. This is a great option for retirees, business owners, and individuals who are self-employed and might be looking for an alternative loan option that avoids traditional income verification methods.
    • DSCR loans: A debt service coverage ratio (DSCR) loan is a great option if you would like to qualify for a home loan without using your tax returns. This type of mortgage is generally reserved for real estate investors, as you can qualify for financing based on your DSCR, which indicates how much cash flow a rental property has compared to its debt obligations. 

    These are just a few of the many non-traditional or non-conventional loan options that could be available to you. If you have questions about whether a non-traditional mortgage is right for your situation, reach out to a professional today to get the process started.

    What to Keep in Mind Before Applying for a Self-Employed Mortgage

    If you are interested in applying for a mortgage as a self-employed individual, you need to put yourself in the best position possible to be approved. Some of the most important tips that you need to keep in mind include:

    1. Pay Down Your Existing Debt

    When you apply for a mortgage, every potential lender is going to take a look at your existing debt. If you want to maximize your chances of being approved, you should try to pay down any existing debt that you have.

    Some of the most common examples of debt include credit card debt, car loans, and even student loans. If you carry the debt with you into the application process, you may have a difficult time getting approved. Try to pay down as much of your existing debt as possible before you apply for a mortgage.

    2. Lengthen Your Tax History

    When you apply for certain self-employed loans, you may be asked for your tax returns. Unlike a W-2 employee, a self-employed individual will generally have to furnish two years of self-employment history. If your income is stable on those tax returns, you can increase your chances of being approved.

    While it might be difficult to wait for a couple of years, it will make it easier for you to get approved if you have a longer tax history you can provide alongside your application.

    3. Increase Your Credit Score

    Just like a traditional loan, your credit score is going to play a significant role in the application process. You need to make sure that your credit score is as high as possible before you apply for a self-employed loan.

    Some of the ways you can increase your credit score include:

    • Correct any mistakes on your credit report before you apply for a mortgage.
    • Try to reduce your credit utilization ratio and increase the amount of credit available to you.
    • Make sure you pay all of your bills on time.

    If you can max out your credit score before you apply, you can dramatically increase your chances of being approved.

    4. Offer To Make a Larger Down Payment

    Remember that the lender will be assessing how much of a risk you are to them. If you show that you are willing to make a larger down payment, you can increase your chances of being approved because you will immediately reduce the risk you pose to the lender.

    While most people recommend putting 20 percent down for a house, you may have an easier time getting approved if you are willing to put down a larger down payment.

    5. Prove You Have Cash Reserves

    While your income is important, your assets are important as well. There are emergency expenses that may arise from time to time, and if you show that you have extra cash reserves, you can increase your chances of being approved. That way, even if your income dries up as a self-employed professional, you will still have plenty of cash reserves you can fall back on to continue to make mortgage payments.

    6. Have Your Documentation Ready

    If you show the lender that you are prepared with plenty of extra documentation, you may increase your chances of being approved. Some of the documentation that you may want to bring with you to the application process include:

    • A list of monthly payments for your business.
    • A list of assets that you have, including your savings accounts, checking accounts, and investment accounts.
    • Proof of on-time bill payments, including previous rent or mortgage payments.
    • A list of any additional sources of income, such as Social Security payments or alimony.

    Apply for a Self-Employed Mortgage Loan Today

    The specialists at Griffin Funding have a significant amount of experience working with borrowers of all backgrounds. If you would like to learn more about how we can help you, reach out and we can discuss financing options. Or, if you’re ready to get started, feel free to apply online today.

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.