It’s great to be your own boss. That is until you need to convince someone to give you a loan. But with a good plan and support from your loan officer, you’ll find that buying a home is one more American dream you can achieve.
Here are five steps you can take to help the process along.
- Put in your time.
Most self-employed people work at their business for a couple of years before applying for a home loan. Doing this will help you build a longer history of tax and banking documents so you’ll have sufficient proof that you can afford (and keep up with) your mortgage payments.
- Pay down your debt.
In the meantime, try to pay down any other debt that you have, both personally and in your business. This will raise your credit score; the number lenders use to decide how much of a risk it is to lend you money. (Credit scores range from 300-850, and the higher, the better!) Having a high credit score makes it easier to get a loan, and you can often borrow money at lower interest rates, which will save you thousands of dollars over the life of the loan.
- Set some money aside.
If you can, continue to save up for a down payment on your home. The more you can pay up front, the less you will have to borrow. That makes you more attractive to lenders, and it’ll save you money in the long run.
- Talk to your lender.
You don’t have to wait until your credit score is over 700, or you have a 20% down payment saved up. In fact, a good loan officer can help you figure out when you’ll be ready to buy, and it may be sooner than you think! As you get closer to that date, your loan officer can also explain the differences between different mortgages and help you decide which one is best for you. They will also make sure you understand what documents you’ll need to prove your income.
- Get organized.
If you’re running your own business, you probably already have all of your accounts and financial records organized. But since you’ll need to submit some extra information, you may want to create a new folder where you keep copies of the documents your lender will want to see. We’ll go over what you need in the next section.
What information will you need?
Plan to keep records of the following documents so you can share them with your lender when you apply for your loan:
- Your 1040 tax form from the past two years (including the Schedule C for your business and the Schedule K1 if you have a business partnership or S corporation)
- A Profit & Loss statement for every month since the last time you filed taxes, covering receipts up to five days before you close on your loan
- Your personal and business bank statements from the past three months
- A complete list of your debts and monthly payments (home and office rental payments, auto loans, credit cards, alimony or child support, etc.), and a record of which ones are paid by your business
- A list of any other assets you own (savings, stock, etc.)
- Additional documents for your spouse, partner, or anyone else who will be cosigning the loan
You work for yourself! You’ve already shown that you have the skills and ambition to go after what you want. And at Ameritrust, we know those same skills come in handy when you’re buying a house! Talk to us, and we’ll help you work towards your next goal of becoming a homeowner.
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