5 Tips for Buying a Home While You’re Self-Employed

If you’re one of the many people considering buying a home while you’re self-employed, you’re not alone. Today, Millennials have started twice as many businesses as the Baby Boomers preceding them, and home ownership has gotten a little trickier as a result.

While it’s not impossible to buy a home as a self-employed person, it does require jumping through a few additional hoops.

Money Matters 101: How to Prepare for Buying a Home

When you’re self-employed, the biggest disadvantage is that you don’t have years of salaried history to show would-be lenders. When lenders can’t verify you have a consistent source of income with a good earnings outlook, they’re less likely to issue loans. Here are five tips for preparing for your first meeting with a mortgage lender and ensuring your ducks are all in a row:

1. Print Two Years of Tax Returns

While people working regular jobs may only need some pay stubs to show proof of income, most lenders require self-employed workers to show at least two years of tax returns. Keep in mind that not all pages of your tax return are necessary. You will only want to print the pages that show your income, expenses, and profit and loss statements.

2. Have Proof of Your Down Payment Ability

If you can pay a down payment on your new home, you may want to print evidence of that. A bank statement showing the balance of your down payment account, and several months of transaction history can be helpful. Even if you know you have the money for the payment, this paperwork can help provide an additional confidence boost for your would-be lender. 

3. Consider Avoiding Deductions

Self-employed people pay the deductions game: to avoid paying large tax bills, it’s a common practice to deduct business expenses. The flip side of this, however, is that taking lots of deductions can make buying a home harder.

Here’s why: when you deduct expenses, you lower your “take-home” income amount. And since this is the only number mortgage lenders can work with, showing too little take-home pay can disqualify you for a mortgage or result in higher mortgage rates. That said, you may want to consider limiting your deductions for the two years before you intend to purchase a home.

4. Start Early

When you go to buy a home as a self-employed person, it’s possible you’ll come across unforeseen complications. As such, it’s smart to start looking early. This gives you more than enough time to adjust course as needed and ensure you get the best home possible.

5. Build Up An Emergency Fund

Since you don’t have the luxury of a predictable income or salary, it’s essential to build up an emergency fund before you go buy a home. If your lender does want to see bank account balances, a big emergency fund can help increase their confidence in your ability to pay back your loan. 

Buying a Home Just Got Easier

The road to home ownership can be difficult for self-employed families and individuals. These five steps can help streamline the process and boost your chances of getting the home you love.