Can you get a mortgage if you are self-employed?
Being an entrepreneur means enjoying the freedom of being your own boss, calling the shots and steering your own ship. But when it comes to mortgages, being your own boss might make it harder for you to get approved. To find out exactly what entrepreneurs can do to get approved for a mortgage, we sat down with John Fosgate, Mortgage Loan Originator with FBC Mortgage.
First and foremost, John urges all entrepreneur looking to purchase a home to get pre-approved right away.
“Any potential homebuyer should get prequalified up front, regardless of how great
or how poor their credit score is,” said John.
Getting pre-qualified is a critical step to take for a couple of reasons. Without a pre-approval, you really don’t know what your maximum price range is. If you skip getting pre-approved and jump right into touring homes, you are more likely to waste time looking at homes that aren’t realisticlly in your budget when you could be narrowing down the field to a your top contentders. Not to mention, any Realtor you work with will want you to have a pre-approval done before showing you dozens of homes as it shows the Realtor that you are serious, but it also puts you in a good position to put an offer in immediately if you find your dream home. Having a pre-approval is especially important in a competitive market as it gives you the edge over the competition to make an offer right away, rather than waiting to get qualified.
As far as the pre-approval process goes, it’s a lot less painless and quick than you may think.
“I can have a pre-approval done in a matter of 30 minutes. I can look at someone’s file predominantly and know if they are going to get the loan or not,” said John.
To start the process, John encourages interested homebuyers to visit his website where they can fill out a pre-approval application.
After the application is submitted, one of the biggest issues entrepreneurs encounter is length of time on the job, said John.
“Its pretty much impossible to get loan approval for someone who is self-employed for just a year, because it’s not enough history to underwrite them,” said John. “If you are self-employed for a year, you are predominantly in your start-up period where you are buying a lot of things for the business and most of the time you are going to show a loss. Typically, we want to see a two-year history of filed tax returns in which we look at both years and then we do an average.”
Another issues John and his team frequently see is intermingling accounts. While it is common for many entrepreneurs to use the same account for personal and business expenses, it adds another layer of complication to the mortgage process, said John. To eliminate unnecessary complication, John recommends getting a personal account at least two months prior to getting pre-approved. Separating your personal funds from your business funds will result in less paperwork, and if you are intending to purchase a home your business should healthy enough where it can operate without those funds, regardless.
At the end of the day, John encourages anyone interested in securing a mortgage to just apply for pre-approval. You don’t know where you stand unless you get pre-approved, and even if your situation is unique there are almost always solutions John and his team can recommend.
Happy house hunting!