Mortgage Requirements for the Self-Employed

Congratulations on finding your first home! You found the one! At least the one for the next couple of years as your grow into it. This is a very exciting time of your life. Pinterest ideas are popping in your head! Ways to improve your home and gain some sweat equity! Sounds marvelous! But wait; before you embark on the journey, you have to figure out a way to pay for the house.

There are some people that are fully prepared to double down, and pay cash for their house. But most people don’t have the cash to do so, so they must get mortgages. Did you know the term mortgage comes from mort and means “death” (as in mortuary or mortality), and gage means “pledge.” Mort-gage means a “dead pledge.” In Bouvier’s Law Dictionary of 1856, Dead-Pledge is defined as “a mortgage of lands or goods.” It’s a pledge of death because it’s an engagement in debt, which is a neglect or violation of our duty; we’re not supposed to engage in those things. This is why we’re not to owe man anything.

When we applied for a mortgage, we had to show proof of income, our financial assets we would use for the down payment, our paystubs, among other financial things. Our credit scores were pulled. It was very interesting. As a young, married couple we don’t have super great credit. It’s ok, so we did not get the best mortgage rate. But what happens when you have unstable income? There are many people in the personal finance stage that have taken the step from working for the man to being the man. The self-employment stage!

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Stricter guidelines due to the new federal regulations require lenders to verify applicants’ ability to pay. Effective January 2014, lenders who make loans within the “qualified mortgages” parameters (low risk for both borrowers and lenders) are protected from legal recourse should the loans go bag anyway. Lenders will have to examine and over examine borrowers’ income and confirm debt-to-income ratio of no more than 43 percent. Borrowers who own their business or are self-employed will be analyzed even more. Self employed borrowers like full-time personal finance bloggers will need to show two years of personal and business tax returns, a profit and loss statement, and a balance sheet.

If you are planning to move from your first home to a second home and are self-employed consider your current budget. Look at any debts and clean up your balance sheet. You can use the loan repayment calculator to calculate how long it will take to various types of loans. If you are making the switch to self-employment, and want to get a mortgage, you may want to consider applying for a mortgage before making the switch to self-employment.

Have you applied for a mortgage while self-employed? Share your stories?


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