Freelancers and contract workers face some major obstacles when it comes to home buying. Getting a mortgage can be hard enough for an employee with a full-time job! Unfortunately, lenders perceive the self-employed as risky borrowers, requiring substantial proof that they have the income and savings necessary to make mortgage payments for years to come. While it may seem impossible to get a mortgage when you’re self-employed, freelancers do it all the time. All it takes is some careful planning. Not sure where to start? Mills Way to Financial Freedom offers some great tips to help you prepare for your mortgage application.
Lay the groundwork for your mortgage application well in advance. The research, saving, and planning you do now will make the process a lot easier down the road.
- Establish your business as a separate legal entity so your business debts don’t affect your personal credit. When it comes to starting an LLC in Arizona, you may need the assistance of professional services.
- Research the real estate market where you want to buy to get an idea of local home prices. Make a point to also familiarize yourself with how competitive the market is.
- Consider saving for a larger down payment to reduce the amount of money you need to borrow from the bank.
Reduce Debt and Optimize Your Income
As soon as possible, start making improvements to your debt-to-income ratio to reduce the perceived risk of lending to you.
- Pay off as much debt as you can — holding little to no existing debt will help you convince moneylenders that you’re a safe bet.
- Don’t use your personal credit for business expenses since this can increase your personal debts.
- Remember, taking tax deductions will make your income appear lower on paper, so try to limit your write-offs for now.
Assemble Your Documents
You will need to demonstrate that you have a steady income and you will be able to afford your mortgage payments now and in the future.
- Be prepared to provide your tax returns from the past two years.
- Small business owners may also have to submit a profit and loss statement with their mortgage application.
- Before applying for a mortgage, check your credit score and fix any errors.
- Go the extra mile by providing bank statements that show how much money you have saved for your home purchase and emergency expenses.
Buying a home is one of the most stressful things you will experience. There are just so many things to consider as you develop a buying budget, prepare your mortgage application, and research homes for sale. While you have a lot of work ahead of you, it will all be worth it when you finally get to put your feet up in your very own home!
Photo Credit: Pexels
Special Thanks to June Duncan for writing the above article and sharing this good information with us.
“The definition of insanity is doing the same thing over and over again, but expecting different results”. By Albert Einstein. I would also say the definition of insanity is believing you can live a financial responsible life without tracking how you are doing, having a budget and goals. I like following others who track their finances to compare our also. I enjoy helping people with their finances and goals.
We want to give our boys the best chance to have their money last them thru their retirement years and have them reach their Financial Freedom goals. They need to live somewhat with a frugal mindset and spend less than they make so they can Invest towards their Financial Freedom goals.
Here are some positive quotes I like;
“Get your Money to Work for You… As hard as You Work for it.” By Napoleon Hill
“1. Make Money. 2. Use the Money to Make More Money. 3. Repeat the Process.” By Warren Buffett
“There is no way to happiness; happiness is the Path.” By Buddha
“Change Your Thoughts – Change Your Life” by Wayne W. Dyer
Let me know your thoughts about this blog and let me know of others you would like me to do in the future. I feel we can all learn from each other. That is why I am in the helping people retire early, enjoy life more and be more successful. Also, please see my Disclaimer page.
Don’t give up on your dreams; don’t let others talk you out of your dreams. Make your dreams happen. Make it happen today.
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