If you talk to self-employed people, you likely can conclude that they enjoy the freedom of a flexible schedule, being their own boss, not having to commute to work every day, and the rewarding feeling from doing something on your own. There are many perks of being self-employed that draw people in.
However, that isn’t to say there aren’t any downsides. In fact, there are a few significant ones that you should remember. One of the big factors of being self-employed is when the time comes to buy a house.
Buying a house while self-employed is doable. It does, though, require a bit more paperwork and possibly more money. Here are a few points to remember if you’re self-employed and buying a home.
You’re Considered Higher Risk
As you search out a lender for self-employed mortgage loans, you’ll soon see a common similarity – many lenders find independent entrepreneurs to be a higher risk for a mortgage compared to someone with a standard job.
You’re a higher risk because of the type of work you do. When you work for an employer, you have your set hours with a set wage that is typically consistent. The lender can see your income and decide whether or not you can afford the mortgage. Someone who is self-employed may not have the same consistency, making them riskier to determine if he or she can afford the mortgage payments.
You’ll Need More Documentation
Documentation is vital for someone who is self-employed and looking to get a mortgage. The more paperwork you have that shows your income and that you have consistency, the better your chances will be of getting approved.
Be prepared to show more than a pay stub or T4s you would get from an employer. If you’re self-employed, you’ll need documents like financial statements from a certified accountant, tax returns, type of business (sole proprietorship or corporation), and many other documents.
You May Pay More for the Mortgage
Someone who is a higher risk is likely to pay more for their mortgage. The monthly interest rate on a mortgage will most likely be higher than someone who is employed by a corporation getting a mortgage. You’ll have to determine if you can afford it, and if it is worth paying higher interest rates to get the mortgage.
It’s a good idea to still shop around from lender to lender, as not all interest rates will be the same. One mortgage broker may be more lenient for self-employed people compared to another one.
Don’t let being self-employed stop you from getting a mortgage for a new home. Many still acquire an affordable mortgage while they work from home.
Ensuring you have the proper documentation and have a sizeable down payment will help better your chances of getting approved. Also, make sure you have a good credit score.
Planning for the day you speak to a lender will also be helpful. Budget your finances so that you always know you have enough money set aside to pay your mortgage.