There are attractive aspects of being self-employed. Being self-employed let’s you largely set your own hours and more directly see the benefits of your efforts. In many cases, self-employed people are their own bosses. There are plenty of tax write-offs to take advantage of and if you are building a business, you are working towards your future. There are, however, some downsides to being self employed. Getting a mortgage and buying a home, for instance, can be a bit more challenging. If you are self-employed and considering buying a home, here are some factors you should be aware of.
You May End Up Paying More
Self-employed mortgage seekers will often find themselves faced with a difficult time finding affordable mortgages. Just know that they are out there. If you are diligent and pursue all of your mortgage options, you will find affordable choices.
Work at Cleaning Up Your Credit
Even if buying a home is a year or two away, now is the time to make sure your credit is in good shape. Work to lower your debt load and improve your debt to income ratio. Make any revolving credit payments in a timely manner.
The Larger Your Down Payment, the Easier it Will Be
It’s a simple fact that the more money you have for a down payment, the easier getting a mortgage will be. Putting a large down payment down on a house also has the additional advantage of lowering your monthly mortgage payments.
Pay Yourself a Wage
One of the biggest differences between the self-employed and working as an employee is how people are paid. Rather than taking an owner’s draw, pay yourself a W-2 wage that you can document. You will still have to include your tax records with your application but it will elevate your documentation.
Keep Impeccable Books
Keep your personal and business financial records separate. Document all of your income and expenses and make sure you have accurate profit and loss statements. Self-employed loan applicants will be held to a higher standard of documentation and knowing that ahead of time can better prepare you.
Reduce Your Tax Write-offs
One of the advantages the self-employed have is they can have more write offs that employed tax payers. This is a double-edged sword, however, in that these write-offs will show a lower net income. You may consider reducing your tax write-offs to improve your net-income.
Consider Working with a Non-Traditional Lender
A non-traditional lender will often work harder with you to get the mortgage you need. These lenders are an excellent option for:
- First-time home buyers
- Buyers with poor credit
- Those who have been through a foreclosure within the past 3 or 4 years