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Can being your own boss hurt your chances at a mortgage?

When it comes to getting a mortgage, credit and employment history play a huge part in a lender’s decision on whether to give you a loan. Many traditional lenders want to see stable employment with one employer and a consistent flow of income. So what does that mean for self-employed and freelancing borrowers who don’t fit the conventional mold for an ideal borrowing candidate? Good news! Securing a mortgage as a self-employed or freelancing borrower shouldn’t be a problem if you go about it the right way. There may be some bumps in the road that may make it a little tougher on you than a salaried employee, but with the right preparation and attitude, you should be fine! Here are a few things you can do to ensure you’ll get approved for a mortgage if you’re working as your own boss. Securing a mortgage as a self-employed or freelancing borrower shouldn’t be a problem if you go about it the right way.


Putting down a large down payment almost always results in an easier mortgage process. This case is no different. A larger down payment can do several things for your application. It shows the lender that you’re serious (as you have more skin and the game). And it reduces the lender’s risk since you’ll be financing a smaller portion of the total cost of the house.

Another positive to putting down a larger down payment is that your monthly payments are likely to be lower. If you can put down more than 20%, you’ll avoid paying mortgage insurance which is another huge pro of shelling out the extra cash for a larger down payment. Needless to say, if you can afford it, put as much down as you can. You’ll save yourself the trouble now and in the future.


Like with any mortgage, your lender will request a lot of documentation in order to properly assess your total financial picture. The industry standard for salaried employees or those employed by someone else is typically six to 12 months of personal tax returns. Unfortunately, it’s a little tougher if you’re self-employed. Typically, self-employed borrowers need to have documentation of at least two years of their entire financial history. This typically means two years of your federal tax returns and proof of your assets. Business owners may also need a profit and loss statement or a 1099 form, but it isn’t always the case if your business has been well-established for five years or more, especially if you’ve shown an upward trend in income over the past two years.

It’s especially important to have these documents organized simply because you’ll have more of them to submit. Disorganization can be the cause of a lot of hang-ups in the mortgage process. And that’s the last thing you’ll want when it comes down to it.


On a similar note, be careful not to comingle your business expenses with your personal expenses. It may be tempting for you to charge a work item on your personal credit card or vice versa, but it will only complicate how a lender sees your liabilities. Be sure to use separate credit accounts for business and personal purchases. That way there’s no financial confusion during the approval process.


Regardless of your financial success following starting your own business, a bad credit score can still tank your prospects of getting a good rate on a mortgage. Checking your credit score should be one of the first things you do before you start applying. Since mortgage rates are mostly based on credit, DTI ratio, and your down payment, it’s a good idea to pay off all outstanding debts before you get approved by a lender.


Buying a home while self-employed can be tougher than it would be if you were working for someone else. But don’t let that keep you from your goal of homeownership. If you get turned down for a mortgage, try again! Your lender may have overlooked something. Plus, you can always consider another lender who may be more understanding and experienced working with people in your situation.

At Heritage Home Loans, we pride ourselves on our wide range of experience with all sorts of clients and our ability to approach each unique situation individually. Keep your head up, and the same stick-to-itiveness that made your business a success will get you the home of your dreams in no time!

Article written by Khari Pressley and reprinted with permission by Cardinal Financial
Brad Patshkowski

Preparing future home owners is paramount to our customer's success and the success of our industry. The dream of homeownership is closer than you think!