As a self-employed individual, you are a hard worker. Time has been spent building your business and now you want to reap the rewards by purchasing a home. However, due to being self-employed, it can be more difficult to secure a home loan. If you are unprepared, you may find yourself scrambling to find a mortgage company in Guelph to assist you with financing. Below is a short guide on what you should do to be prepared to earn mortgage approval.
Credit Report Review
Before trying to obtain a mortgage loan, be sure to review your credit report. If you find any errors or issues, be sure to have them corrected. If you have any outstanding debt in collections, contact the agency to ask that the record be deleted when you pay it off. If it shows paid in full once paid, it still appears as a blemish on your record. Having a good credit score will assist you in securing a loan.
Tax Deduction Write-Offs
It is a common practice for self-employed business owners to reduce their income for tax purposes by writing off business expenses. However it is important to note that your mortgage will be based on the income from your tax returns and if your income is to low, you may only qualify for a smaller mortgage amount than you had planned for.
When you write off too many tax deductions you are then reducing your net income, which could make it hard for you to obtain the mortgage amount you need. Your accountant should be able to help you in this regard. Discuss what tax deductions you should include with your accountant and what could be avoided to meet a certain net income to qualify for a home purchase.
Year-Over-Year Income Consistency
Mortgage lenders need to see consistency in your income. As a self-employed individual, you may have varying years, where you may a solid stream of revenues one year but experience losses the next. If you are able to show a steady year-over-year income, you are more likely to be approved for a loan. If you do have a tax return that shows a decrease in income, see if you can show the lender returns for several years running, providing profit and loss statements for accuracy. Generally speaking lenders take the average of the two most recent years.
Place Money in One Account
When you are preparing to apply for a mortgage in Guelph, take time to place money for the down payment, closing costs, etc. into one account. This account should be one that is rarely used so the paperwork is minimized when you go to start the loan process. An account that has held funds for 90 days or more is considered a seasoned account and a personal asset. This secures the money and allows it to easily be used for your mortgage needs.
Work with your Lender
More will be asked of you than the average individual when you are self-employed. Be prepared to work with your lender by providing documentation as needed and include at minimum, two years of personal and business tax returns. You will need year-to-date profit and loss statements as well as bank statements. Work with mortgage lenders who have experience reviewing tax returns so a strategy can be created to ensure you qualify for a loan.
At Mortgage Guys, we have experience with helping individuals who are self-employed with a mortgage loan. Let us make the process as simple as can be for you to enjoy a brand new home.