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Last Updated on March 1, 2018 by Work In My Pajamas
Unless you have a stellar credit score or have been working for yourself for many years, self-employment is likely to be one of the biggest obstacles standing in your way when applying for a mortgage. Buying a home is an overwhelming process for anybody and having to prove that you earn enough from self-employment can make it all the more stressful. There are several ways to overcome the challenges, and bear in mind that many issues you may have heard about could simply be a myth. Read on for our advice on getting a mortgage and buying your own home whilst working for yourself.
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Tip #1. Separate Your Business and Personal Finances:
The first thing that you should do is separate your business and personal finances. Even if you have very few business expenses, it’s a good idea to open a separate current or business account for storing your earnings and paying yourself a monthly wage. Before applying for a mortgage, it’s essential to ensure that there is a clear line drawn between your business finances and personal money. It’s advisable to use a reputable accounting or record keeping software or app to achieve this.
Tip #2. Don’t Fall for the Loan Myths:
One of the biggest misconceptions about buying a home when you work for yourself is that you won’t be eligible for an FHA loan. This is simply not true; although it may take some time for your business to start turning over a decent profit, once you’ve gotten off the ground and started providing a steady stream of income from your brand, it will be treated just the same as any other form of income when applying. So, if you’ve been going steady in self-employment for a while and have regular, secure income being paid in, you should have no problem getting an FHA loan providing you pass a credit check. Check out this Midland Mortgage review for more information on what to expect.
Tip #3. Consider Alternatives:
When it comes to buying your home, you may be able to consider alternatives to mainstream, high street banks to fund your purchase. Since the home loan market is finally starting to catch up with the rapid increase in self-employment and entrepreneurship, there have been several alternative loans introduced to provide a viable option for those who work for themselves. For example, an ‘alternative income verification loan’ takes overall cash flow, rather than taxable income, into account.
Tip #4. Have a Safety Net:
Since self-employment can be an unpredictable source of income, it’s essential to put away savings for an emergency fund. Not only will this ensure that you’re able to keep up with home loan repayments if business is slow for a while, it will also show potential lenders that you’re responsible with your finances and more likely to be a responsible borrower.
Getting a home loan when you are self-employed isn’t always the easiest process, but it’s not impossible!
