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July
8
8
Self-Employed? The Right Path to Mortgage Approval
Getting a mortgage isn't what it once was. After the market crash of a decade ago, getting the funding for the most expensive purchase most people will make during their lifetimes has been heavily regulated and for good reason. If you're looking for South Bend homes for sale and happen to be self-employed, your journey toward a mortgage comes with some additional challenges.
Even so, our real estate agents can help you take the right path to mortgage approval.
- Get Your Documents in Order
The first rule of getting a mortgage for anyone is to get all of your financial documents in order and be prepared to present them if asked by your lender. A non-self-employed person who earns regular wages can expect to provide a couple of months of bank statements, a handful of paystubs, and a couple of years of tax returns.
The self-employed mortgage applicant, however, may be required to provide the same documentation but more of it. If you keep proper books, then it shouldn't be any trouble providing both business and personal documents that show cash flow through the business and translated into personal income. In short, be prepared to do a little more work to prove your financial status and income. - Keep Clean Credit
Having a good to an excellent credit score will go a long way in getting approved for a mortgage if you're self-employed. Since many self-employed mortgage applicants can often have erratic earnings and income numbers, banks may look at you with a bit of skepticism.
Ultimately, however, a lender's job is to lend you credit for your purchase, and it's up to you to make a strong case for creditworthiness. If you have any outstanding debts that may affect your credit, take care of those items and make sure they're accurately reflected on your credit report before applying for a mortgage. - Keep Business and Personal Accounts Separate
One of the things that can muddy the waters with lenders is when self-employed mortgage applicants can't show a clean break between their personal and business assets and expenses. It's probably the biggest mistake you can make as someone self-employed when it comes to getting approved for a mortgage.
It's good business to keep separate accounts and separate bookkeeping for both your personal income and spending and for your business. Not only does the IRS frown upon mixing the two classes of money, but lenders will likely require you to separate the two, which can lead to a lot of extra work and headache if you haven't kept separate books.
Even if you're self-employed and operating as a sole proprietorship, it's essential to establish a dedicated business entity to better differentiate you as a business from you as a person. You can apply for a DBA (doing business as) from your state, which will allow you to create a Federal Employee Identification Number (EIN) and open bank accounts under a business name. All of these things can help keep your business and personal assets 100% separate.
If you have any questions about getting a mortgage while you're self-employed, then contact us to learn more about things you can do to get approved for your mortgage. Additionally, we can help you find the South Bend home of your dreams and get you started by looking through our current inventory of homes.
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