How Do You Get a Mortgage When You're Self Employed?
It can be challenging to find a mortgage for self-employed professionals. Without a W-2 or other traditional proof of income, some lenders see you as more of a risk, even if you have a healthy and growing business.
If you’re a freelancer worried about getting a mortgage, don't worry. You can still navigate the mortgage process. The more you know about self-employed mortgage lending, the better off you'll be.
Read on to learn what a self-employed mortgage lender will look for in your application and what you need to prepare to have the best possible chance of success.
What Mortgage Lenders Will Consider Among Candidates
Like you as a freelancer, mortgage lenders are businesses. They need to protect their assets and reduce their risks. That means ensuring borrowers have the financial resources to pay them back.
To get that reassurance, mortgage lenders for self-employed borrowers look at these three factors.
Annual Income Amount and Stability
Lenders usually require a borrower's housing expenses — loan principal, interest, taxes, and insurance — to be no more than 28% of their monthly gross income.
For example, if you make $5,000 a month before taxes, a lender may assume you can afford housing costs around $1,400. Your monthly mortgage payment would then need to be less than $1,400.
To estimate your approval amount, take your annual income and multiply it by two or three. A $5,000-a-month taxable income would typically translate to $60,000 a year. That means a $120,000 to $180,000 mortgage.
Lenders look more favorably on stable incomes. That means having at least two years working for yourself, earning an amount that qualifies you for the mortgage you want.
Some borrowers can secure a mortgage with less than two years of self-employment, but it requires more documentation.
Lenders don't care only about what you make. They also need to know you're a responsible borrower.
To get this information, a mortgage lender will focus on the