3 Tips For The Self-Employed When Applying For A Home Loan
If you are self-employed and are trying to buy a house you might be running into some problems. As many people know, being self-employed and trying to conform to the mortgage guidelines can be challenging. Luckily, there is still hope. There are some things that you can do to still get a home loan and continue being self-employed. Here are a couple tips.
1. Don't Take Deductions On Your Taxes
When a contracted employee applies for a mortgage, they bring in their W-2 information. This helps the lender to know how much the individual makes each month and gives them an idea of their income. However, for a self-employed individual, they don't have this luxury. Even if you pay yourself with W-2 payments, they probably vary from month to month. This is why they generally use your taxes to determine your income.
However, they won't accept your net income as your income, instead they take you AGI (Adjusted Growth Income) this is the number that you get after you have deducted all your expenses. If you are self-employed, you can probably deduct a good deal from your taxes. However, when you are applying for a home loan, this could hurt you. This is why the 2 years leading up to your mortgage application you shouldn't take as many deductions to keep your AGI as high as possible.
2. Ask For Less Than You Can Afford
Another important thing is to ask for less than you can afford. Many lenders will lend up to 43% of your income, meaning that your debt to income has to be 43% or less. They might have a harder time approving you for this amount, seeing that you will be a risk to them. This is why asking for a smaller amount and keeping your debt to income lower will improve your chances of getting approved.
3. Give It Time
In most cases, the lenders want to see 2 years worth of taxes to see what your income is. In many cases, there is no way around it. They want to average your annual income over 24 months to see how much you make each month. Thus, even if you think you can afford a house, you may need to simply give it time until you can get two years worth of tax information.
By understanding these things, you can better prepare yourself to get a mortgage even if you are self-employed.
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