Self-employed homebuyers generally have more difficulty getting a mortgage, because of the way their income is reported and because they are often perceived as not having the job security of others – if they get sick, for example, their whole operation may be down for the duration. Even self-employed real estate agents and mortgage loan officers encounter this roadblock en route to mortgages. But there are a number of options available to those who are self employed and trying to secure financing to buy a home.
If you have good credit and enough money to pay a significant down payment, you can use so-called low-document and no-document loans, two of the most popular options for self employed borrowers.
"Low-doc" loans require a larger than normal down payment, but in exchange; you don't have to verify your income by showing tax returns and other financial paperwork. Usually a credit check and one or two bank statements is sufficient documentation. The process is streamlined, simple, and advantageous for those whose income may look smaller on paper than it actually is.
The closely related "no doc" loans require no documentation of income at all. These are one of the easiest loans of all to process, so if you qualify for one of these, your mortgage application will not take very long at all.
The downside is that both of these loans require larger down payments – usually 20 percent or more – and they carry slightly higher interest rates. But for those who don't mind paying a little extra for the convenience of qualifying, both mortgages represent excellent choices.
Many do-it-yourself home sellers will also offer to arrange their own owner financing for those who are self-employed. They know that this gives them an edge in a competitive market, and they often understand that self-employed people constitute one of the highest income brackets, and are usually dependable borrowers. Even if you aren't dealing with "for sale by owners" directly, you can request your Realtor to show you houses that offer seller financing, in order to discover more mortgage options as you house hunt.
In addition to owner financed purchases, self-employed people can look for funds from professional private lenders. Many private investors sell mortgages for a living, and they offer competitive and unique kinds of loans, in order to gain their share of a niche market that is not normally served by the traditional banking community. If you are self-employed, chances are you can borrow money to buy a house by going to a private lender in your area. You will probably pay a higher interest rate, but that is going to be the case with almost any special loan made to assist those who are their own bosses. Once you own a home and have equity in your property, you will probably qualify to refinance into a conventional type of mortgage, so that is a good plan for the future for those whose choices may be limited in the beginning because of self-employment status.
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