Welcome back to the Capital City Real Estate Group video blog! I’m Marc Iafrate, Broker-in-Charge of the Capital City Real Estate Group here in Raleigh. Today we are going to discuss Three Tips for How to Secure a Mortgage if You’re a Self-employed Entrepreneur.
If you are self-employed, your income can fluctuate greatly from year to year. That can make it difficult to get approved for a mortgage, however, there are some things you can do to improve your chances. Here are a few tips for securing a mortgage if you are self-employed.
Make Sure Your Credit Score Is In Good Shape. This is key! While your ability to pay back a mortgage is the most important factor in approval, your credit score is a close second, and that goes for every borrower, not just those who are self-employed. If you have a credit score in the high range — something above 750 or 760 — it will help you get approved for a mortgage. To help your score, make sure you pay all bills on time, pay down your debt levels and don’t make any new big purchases or apply for new credit soon before you apply for a mortgage.
General guidelines dictate debt to income ratios and are very important. A front-end calculation consists of your housing-related debt and shouldn’t exceed 28 percent of your income.
A Back-End calculation includes your total recurring debt payments (including housing, student loans, credit cards, car loans, child support, alimony and more) shouldn’t exceed 36 percent of your income, which is why you need to reduce your debt!
Lenders will pull at least 2 years of tax returns and calculate your average monthly income over the last 24 months. Ideally you want to show consistency or steadily increasing income during this time period.
The more money a bank lends you to buy a house, the more risk it is taking on that the money won’t be paid back. If you are self-employed and considered a higher risk to begin with. If possible, put down a larger amount of money for your down payment. A 20 percent down payment is fairly standard for a conventional loan. Putting down at least 20 percent also will save you money in the long run, because you won’t have to pay for mortgage insurance and you will pay less in finance charges over the life of the loan.
One way to put a lender at ease about your ability to pay for a mortgage is to have significant reserves in the form of assets. If you have large amounts of money in regular savings, brokerage and retirement accounts, it offers a reserve for you to tap should your income take a dive.
We hope these general guidelines and tips are very helpful and highly recommend that you consult with a mortgage professional to discuss your specific situation with them. We, at the Capital City Real Estate Group look forward to helping you find that perfect home and in the meantime, if you’d like us to provide a list of great lenders, just ask! We will see you back here next time.
And remember, you can always rely on your Capital City Real Estate Group Broker for helpful tips and referrals for trusted professionals whenever you need them.
To search all homes for sale in the Raleigh area and surrounding communities, visit this link to our website http://search.capitalcityrealestategroup.com/search-landing.php
Marc Iafrate, MBA
Capital City Real Estate Group
(919) 390-7810 Office
8319 Six Forks Road, Suite 201
Raleigh, NC 27615