Requirements for self employed mortgage?

Are you self-employed and looking for a mortgage? There are a few requirements you'll need to meet in order to qualify. Read on to learn more.

Requirements for self employed mortgage?

Most mortgage lenders require at least two years of stable self-employment before they can qualify for a home loan. Lenders define a “self-employed person” as a borrower who has an ownership interest of 25% or more in a company, or someone who is not a W-2 employee. Yes, you can get a mortgage if you are self-employed. In general, you'll need to prove two years of income history from your self-employment with tax returns.

Self-employed borrowers can obtain approval by showing two years of self-employment history. If you have at least one year of self-employment, you can still get approved by showing that you worked in a similar field for at least two years before becoming a self-employed person. A broker who has a history of working with freelancers can more easily guide you through the process and save you the legwork. Some lenders may worry that they won't earn a stable enough income to make their monthly mortgage payments, and others may simply not want to deal with the additional documentation that may involve granting a mortgage to a self-employed person.

You'll need to provide certain documentation to verify your work income and show the lender that you're eligible for a mortgage. Because of this, self-employed mortgage applicants generally have to meet a higher threshold of lender requirements to obtain a home loan. Self-employed mortgage borrowers can apply for the same loans “traditionally employed borrowers can do it.” Obtaining a joint mortgage with a co-borrower who is employed with Form W-2, such as a partner, spouse, or trusted friend who will share ownership of your home, is another way to improve your prospects of getting approved for a mortgage if you are self-employed. You can also consider working with a mortgage broker, whose job is to learn the ins and outs of each lender's policies regarding loans to self-employed workers and whose relationships should help you move forward with your mortgage application.

The fewer monthly debt payments you have when you start the mortgage process for the self-employed, the easier it will be for you to make your mortgage payments. Mortgage requirements for self-employed workers often involve greater verification of documents and, sometimes, a more extensive analysis of their employment history. Whether you're self-employed or an employed borrower, having the time and space you need to prepare to apply for a mortgage will make the process faster, easier and much less stressful. While Rocket Mortgage's down payment requirements don't change as a result of self-employment, some mortgage lenders may try to mitigate your risks by having you make a higher down payment, resulting in a lower loan-to-value (LTV) ratio.

Keep in mind that FHA loans come with other significant costs, including a large initial mortgage insurance premium, so keep it as an alternative option if you can't get approval for a conventional self-employed mortgage.