Buying a home can be a stressful and involved process, and being your own boss can throw some additional obstacles in the way. To help you traverse the world of financing a bit easier, let’s examine some mortgage options for self employed home buyers in Santa Cruz.
Set Your Expectations
From the very beginning of your mortgage journey, it’s important that you take time to understand you are in a difficult position.
Lenders will be scrutinizing both you and your business in order to determine if they feel you are in a reliable financial position, and they may provide home financing for you with little-to-no risk.
This means sometimes going out of your way to be as transparent as possible to build their trust in you and your business. Your average mortgage lender will be much more inclined to lend to self employed home buyers who have been self employed for a minimum of two years and can prove a consistent level of profitability – if not growth – in their businesses.
Weigh All Opportunities
Not all mortgages and lenders are alike, and all home buyers need to carefully consider every choice available to them.
This means researching individual lenders and their current advertised interest rates, and discovering which loan term will work best for you. It can be very easy to take the recommendation of family or friends without paying attention to another opportunity with an entirely different lender that could have worked more to your advantage. This is an especially important thing for self employed home buyers.
Instead of finding yourself with regrets down the road, make the effort to carefully do your research upfront, and eliminate the possibility of those future headaches.
Clean up Your Credit
No matter which type of mortgage or lender you select to pursue, you want to request your free annual credit report from the major credit rating agencies.
Once you receive the credit reports, comb through every detail very carefully to ensure there aren’t any errors or debts you may have forgotten or overlooked in your past. It’s not uncommon for a mortgage applicant to discover they left behind even small debts that have either built up over time or languished, slowly eating away at their credit score.
You want to have the highest possible credit rating when you begin your application process to help secure a lower interest rate, which will save you a substantial amount of money over time.
Provide Thorough Documentation
In preparation for submitting your application, it’s a good idea to take the time to assemble a packet of information that your mortgage lender is certainly going to request.
Being self-employed means you do not have the usual history of pay stubs from a regular employer to verify your consistent income, and your lender will understand this. To compensate, it’s a good idea to provide at least the last two years’ federal tax returns, a list of debts, and a list of assets.
Finally, it’s a good idea to go ahead and fill out a federal 1099 form, also known as a profit and loss statement.
If All Else Fails
If you find yourself in a situation where there are not many lenders willing to finance someone who is self-employed, or your applications are being denied across the board, a final last-ditch effort could be applying for a personal loan.
While not nearly as attractive as a mortgage, a personal loan could be used to patch up a hole in your financing. Keep in mind that personal loans will involve an intense vetting process and come packed with shorter repayment periods and higher interest rates.
Lastly, a personal loan will yield a vastly smaller amount of money, so run the numbers and be prepared to make up for the difference yourself.
Professional Guidance for Self Employed Home Buyers in Santa Cruz
We understand the unique challenges faced by self employed home buyers, so contact us today at 831-588-2334!