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Getting a Mortgage When You’re Self-Employed: How Easy is it?

There are many myths and misconceptions surrounding the freelancer life: that it’s code for “unemployed” or that it consists of you sitting on your couch in your sweat pants, doing the occasional assignment whenever you can pull yourself away from your daytime soaps. Unfortunately, even the hardest working of the self-employed are affected by these persistent stereotypes, meaning that it’s often more difficult for them to get leases, loans, and mortgages from skeptical lenders. Although it’s more difficult, it’s by no means impossible. Take it from a Parker and Castle Rock Realtor who’s been in this business for over 20 years, if you’re self-employed, you can still own your dream home.

How to Get a Mortgage When You’re Self-Employed

1. Be Prepared

The sad-but-true reality is that many lenders might not view you as the best candidate for a mortgage based on your perhaps-variable income or they may not want to deal with the extra paperwork involved. When searching for a mortgage, brace yourself for higher interest rates and fewer options than those advertised.

2. Scrape Together a Down Payment

The best way to combat skeptical lenders is by paying more for the house outright. Since lenders see you as a liability, you’ll have to convince them that you’re responsible and worth every penny of your new investment. A large down payment helps to offset lenders’ risks.

3. Work on Your Credit

One reason lenders shy away from self-employed mortgage shoppers is because they typically have lower credit scores than salaried workers. Request your annual free credit history and immediately report anything that looks suspicious. Up your credit score by:

  • Lowering your debt-to-credit ratio,
  • Using only one or two credit cards,
  • Not opening up any new credit accounts, and
  • Paying everything on time.


4. Gather Documents Early

For lenders, as for everyone else, time is money. Lenders do not look forward to the amount of time they’ll need to spend on paperwork while securing a mortgage for the self-employed. Getting organized early and presenting your documents first thing will make the lender’s life easier. Be sure to bring personal and business income tax returns for the past two years and a quarterly profit-and-loss statement.

5. Save, Save, Save

After the Great Recession, irregular income is now a lender’s worst nightmare. To show that you are indeed good for your payments, have enough in your savings account for at least a year’s worth of mortgage payments.

6. Cut Back on the Deductions

Tax season can be hard on the self-employed, but if you’re thinking of getting a mortgage in the next two years, try to reduce the amount of deductions you take. You’ll want your taxable income to be as high as possible when applying for a mortgage. So while you should continue to contribute to a retirement account, limit any extraneous business expenses.

Though securing a mortgage will be a bit more difficult for the self-employed, it’s completely possible to get that Colorado property you’ve been dreaming of.

Jim Garcia RE/MAX Castle Rock CO Realtor
By: 2015-01-11

Jim Garcia is a RE/MAX Professionals Colorado Realtor® in Douglas County Colorado. When he's not involved with real estate transactions, he spends time with his family, hones his cooking skills and enjoys the unique adventures only Colorado can offer.