When you are a self-employed individual, whether you run your own small business or are a freelancer such as a writer or consultant, you may think that you will never be able to purchase your own home and get the financing that you need to do so. However, this does not have to be the case. If you are looking to the future and hoping to be able to purchase your own home, there are some tips that you should know in order to make that dream a reality. Once you have all of the information you need, then you can begin the process of looking for and purchasing the home of your dreams.
You Need To Keep Very Meticulous Income Records
Because you will not have official pay stubs to show a loan officer when you are applying for an FHA (Federal Housing Administration) loan or other type of financing for your home purchase, you will need to be able to provide detailed and accurate proof of your income over the last several years in order to qualify for that financing. As such, you will want to begin keeping meticulous income records (if you do not do so already).
Your financing company will want to know that they are making a good investment by giving you a loan. This means that they will want to see that your income exceeds your business and other expenses by a significant margin. You will want to keep profit-loss records as well as documentation of your net income after you take out taxes and business expenses and provide these to any loan officer when you apply.
You Will Need To Be Prepared For Many Questions
There is no doubt that it can be much more difficult for someone who is self-employed to secure a home mortgage loan than a person with steady income from an employer. Financial institutions always want to know that they are going to get their money back, even if the loans are backed by the federal government (as is the case with an FHA loan).
As such, be prepared to answer many probing questions about your business and your income. This will be especially true if there are any periods of time in which you were not getting steady work or your income levels dropped significantly. You will need to have a thorough and truthful explanation for these gaps in income as well as a reason why this will not likely happen again in the future.
These questions are designed to ensure that you will be able to make steady and regular payments on your loan in spite of the fact that you work for yourself and cannot always guarantee how much money you will make in any given month. Do not get defensive or evasive when the loan officer asks you such questions and be prepared with open and honest answers.
With these tips in mind, you can begin to prepare yourself for the process of trying to buy a house when you are self-employed. While it may not be easy, it is doable and you can get yourself the home you have been dreaming of if you take the time and effort to do so.
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