Most mortgage lenders require at least two years of stable self-employment before you can qualify for a home loan. Lenders define “self-employed” as a borrower who has an ownership interest of 25% or more in a company, or someone who is not a W-2 employee. Mortgage lenders evaluate self-employed customers the same way they would look at anyone else. They want to see that you have a decent credit score.
They will also look at your debt-to-income ratio (DTI) to determine if you can pay the mortgage payment associated with the loan. Finally, lenders will review asset and income statements to verify their resources. 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 self-employed.
Self-employed mortgage borrowers may qualify for conventional and government-backed loans. You're more likely to be approved and have favorable terms for your loan if you have a good credit score, have been in business for two years or more, and can demonstrate reliable income. You can also qualify with a co-signer who has a high credit rating. You may also consider working with a mortgage broker, whose job it is to know the ins and outs of each lender's policies regarding loans to the self-employed, and whose relationships should help move your mortgage application forward.
You'll need to provide certain documentation to verify your work income and prove to the lender that you're eligible for a mortgage. However, for the person employed, the tax return is used to verify that they have maintained stable employment without significant changes. Because of this, self-employed mortgage applicants generally have to meet a higher threshold of lender requirements to obtain a home loan. While the down payment requirements for Rocket Mortgage 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.
Self-employed mortgage borrowers can apply for the same loans that traditionally employed borrowers can apply for. A broker who has a history of working with freelancers can more easily guide you through the process and save you fieldwork. Whether you're self-employed or an employed borrower, giving yourself the time and space you need to prepare to apply for a mortgage will make the process faster, easier, and much less stressful.
