Buying your first home is a big part of the American dream. If you've kept your credit clean and have a solid work history, it shouldn't be too difficult to find the home of your dreams among the homes for sale. However, if you're self-employed, the process becomes more difficult. While it's not impossible to get approved for a home loan if you're self-employed, lenders aren't as eager to say yes if you're not a W-2 employee. If you're self-employed, don't give up hope of owning your own home. Here are four steps you can take to improve your chances of being approved for a home loan.
Make the Most of Your Credit Score
If you're self-employed, you're going to be starting the home-buying process at the bottom of the list. To get yourself noticed, you'll need to make the most of your credit score. Don't just settle for a good score. Work on your credit until you have an excellent score. Not only will lenders sit up and take notice of you, but they'll also offer you a lower interest rate.
Pay Off Your Debt
You've increased your credit score, but that's not all you should do to improve your credit-worthiness. Banks are going to be worried that a sudden business loss is going to leave you unable to pay the debt you already have. Alleviate the concern by paying off all your consumer debt before you apply for a home loan. This should include all credit-card debt that you may have. It's okay to have your credit cards. Just make sure that they're at a zero balance when you apply for your home loan.
Increase Your Down Payment
When it comes to financing a home when you're self-employed, banks want to know that you have a significant interest in the home. That's where a sizable down payment comes in. Go to the bargaining table with a down payment already available. Banks are more willing to provide financing when they know that you have something substantial to lose if you default on the loan.
Have a Paper Trail
If you're self-employed, the paper trail is perhaps the most important detail when it comes to buying a home. To secure a home loan, make sure you have a paper trail that goes back far enough to provide a thorough financial history. Your paper trail should include complete bank statements, tax returns, and 1099s for at least three years.
If you're self-employed, you don't have to give up on your dream of owning a home. Use the tips provided here to find the right lender for your home loan. Be sure to talk to your realtor for additional tips on how to obtain financing when you're self-employed.