In the market for a new home? If you’re self-employed, getting a home loan can be a bit tricky. During the real estate boom, self-employed borrowers were able to get “stated income” loans that required little in the way of documentation. But too many people were a bit too creative with their incomes – hence the nickname ‘liar’s loans.’ Ultimately, many business owners purchased homes they couldn’t afford and lost them to foreclosure. That’s why today, most self-employed borrowers are subject to more stringent lending criteria – and more paperwork requirements – than before. Here’s what you can expect to provide your lender if you’re trying to buy a home:
Proof of income. Most likely, you’re going to have to provide proof of at least two year’s worth of income. Ask your lender what documents they need to evaluate your income. You may be asked to furnish both a quarterly profit-and-loss statement and your most recent tax returns.
Documentation for all deposits. You’ll need to document deposits going into your accounts. Ask your lender if you should start organizing invoices and other documents that explain the flow of funds into your account. Be aware that a large undocumented deposit is a definite no-no during the mortgage approval process, especially if you’re self-employed.
Proof you have reserves. Having an amount equal to at least two months of mortgage payments in the bank is important for any borrower, but especially so for self-employed people whose incomes can fluctuate substantially.
For more information about what the self-employed can expect during the mortgage approval process, give us a call!