Being self-employed does have its advantages; you don’t have to follow any dress code, sweat it out when you ask for a vacation, or even endure a life confined in a cubicle. But when it comes to applying for a loan, most people panic, because they don’t have income stubs to show they have steady income coming in. True, things may be a little different when compared to applicants who have a steady income, but your situation is not entirely impossible. Here are certain tips that would help you secure a home loan:
Planning ahead pays off
If you are self-employed, all it takes is good planning. You need to be a much better planner than the regularly employed people prior to making a big purchase. In order to ensure that you are reliable, you shouldn’t have any other debts in your name. Especially since personal loans and business loans are different from each other. Make sure you don’t mix your personal finance and business finance dealings.
Most lenders look at the debt-to-income ratio
Lenders have a particular way of knowing whether you are qualified for the loan or not. They calculate your debt-to-income ratio by looking at two things in particular:
(1) Your back-end payments, comprising of the amount you pay as recurring debts. It should not be more than 36% of your income. Back end payments could be student loans, car loans, child support loans and so on.
(2) Your front-end payments, comprising of the amount you would need to pay as house loan. It shouldn’t be more than 28% of the loan amount. Hence, when it is time for you to apply for your housing loan, make sure you don’t have several other debts as well.
The lenders may want to see the tax returns you’ve filed.
Lenders usually ask for the tax returns (copies, of course) you filed for two consecutive years. They would then like to see the final amount that they get when they divide your adjusted gross income by 24. That way they reach a conclusion regarding your average monthly income. You can do this yourself and find out whether you will be capable for a loan or not. So crunch your numbers when you file for tax returns because they don’t like to see a decline in the income. If the first year showed good income and the second year showed a drastic decline, then the lender might not grant you a loan.
If you are self-employed and want to qualify for a house loan, following the tips above would definitely help you. You can even earn a larger mortgage if you eliminate other debts totally.