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5 Steps To Qualify For A Mortgage If You’re Self Employed

5 Steps To Qualify For A Mortgage If You’re Self Employed

We often get phone calls from people that are self employed with concerns about qualifying for a home mortgage. These are valid concerns since there are usually stricter guidelines to qualify for the self employed professionals.

The following article is a useful guide to help you determine what you will need to qualify for a home loan or mortgage refinance if you happen to be self employed.

5 Steps To Qualify For A Mortgage If You’re Self-Employed

If you are among the thousands of Americans who turned the dark cloud of the recession into the silver lining of becoming self-employed, you may feel you are now in a position to refinance your mortgage or to buy a home. Even with good credit and sufficient assets, though, you’ll find that even the best mortgage lenders will require you to produce your tax returns and possibly a quarterly profit-and-loss statement in order to establish that you have sufficient income to make your mortgage payments.

SEE: 6 Questions To Ask Before You Refinance

Most mortgage applicants today are prepared to go through a few hoops to qualify for a mortgage, but if you’re self-employed you may need more than a quick comparison of the best mortgage rates to find the best mortgage for you. If you’re new to self-employment, you will need to wait until you have two years of tax returns filed before you can be approved for a new mortgage in order to include your self-employment income in your loan application.

Good Credit

All borrowers today need good credit, with a score of 620, 640 or above for a Federal Housing Administration (FHA) loan and a score of 740 or higher to be offered the best mortgage rates for a conventional loan. Some lenders consider self-employment income as a higher risk than regular paychecks, so a higher credit score can offset your potential risk factors and give a lender greater confidence when qualifying you for a loan. Check your credit report to see if you have negative information that can be corrected or improved before you apply. (For more tips, see Self Employed? 5 Steps To Scoring A Mortgage.)

Low Debt-to-Income Ratio

Lenders typically like to see an overall debt-to-income ratio of 41% or less, although borrowers with other compensating factors may still qualify for a mortgage with a ratio as high as 45%. You can use a mortgage calculator to estimate your housing costs along with your other debt. If you can pay off some bills to reduce your debt-to-income ratio that can be another compensating factor in your favor.

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