A mortgage is a crucial component of the property buying process for most borrowers. Many borrowers don’t have thousands of dollars available to buy a property. The cost of real property is significantly higher than the money saved by most households who depend only on monthly salaries.
On the other hand, mortgages make it possible for middle-income individuals and families to purchase real estate properties. Most financial institutions only require a down payment of 20% of the total property value.
Meanwhile, the lender or the financing firm will shoulder 80% of the mortgage. In turn, the borrower will pay back within the agreed duration or term of the loan. The property in consideration will serve as collateral which can be taken or foreclosed if the debtor fails to pay back the loan.
Getting A Mortgage If You Are Self-Employed
Ideally, property loans are only made available to people who have adequate assets and income to pay back the loan. Most borrowers go through the loan process with a trusted mortgage broker to assist them in their loan applications. This is because they need an expert to help them through the requirements and to understand how mortgage transactions will work best for them.
On the other hand, financial institutions consider the credit score as one of the aspects in deciding whether a loan will be granted or not. Other aspects that can affect your credit score are your regular salary, card payments, and other financial activities.
Therefore, the higher your credit score, the more chances of the mortgage being approved. Likewise, the consistent income that comes from having a regular job adds to a better credit score for the individual.
Meanwhile, people who are self-employed often don’t have time to spare for the time-consuming procedures that are required to apply for loans. That’s why most of them find it more convenient to just plan and save up for their desired property.
Nevertheless, it’s possible to secure a mortgage even if you’re self-employed, more so if you have the assistance of professional. Below are some insights to help you out.
- Evaluate Your Financial Situation
Lenders tend to assess the financial capacity of every borrower to be able to collect the money they give out. It’s part of their investment, and that’s how their business operates. If you plan to get a mortgage, you need to make sure that your financial situation is stable and that you have enough money to pay off any additional debts that you may incur in the future.
Here’s how the lenders assess your financial situation:
- Stable Financial Statement
Your lender will assess your financial situation through your financial statements. Your assets versus your liabilities, and how much cash you have for future loan repayments.
- Impressive Bank Statement
Sufficient money in your bank account means you’re doing good business. A good business means you have enough money to cover all your operational costs. It also means that your business is giving you a good income.
- Ensure You Have A High Credit Score
A high credit score indicates that an entity maintains a good cash flow and has a good credit standing with other lenders. It’s also a sign that you pay your accounts on time and have excellent financial management. That’s why always ensure that your credit score is good enough for your mortgage application to be approved.
Below are some tips to achieving a high credit score:
- Mind Your Repayments
Keeping a tab and ensuring timely payment of your credit cards helps increase your credit score. It’s a good business attitude to always mind your payables. It’ll always result in you getting a high credit score.
- Avert Incurring More Debt
Having little or no debt is an indication that your business is financially secure. You can always negotiate a grace period for the payment of your purchases.
Hence, you can ask for net 30 or net 60 if they’re available from your supplier. This payment scheme allows you to avoid having a record of your borrowings and maintain a good credit score.
Also, a high credit score will allow you to negotiate for a lesser interest rate on your mortgage. That’s why borrowers like you should maintain good credit standing so you can always have better deals with your financing firm.
- Find A Reputable Lender
Reputable lenders are known for their conscientiousness in handling each of their clients. They’re also known to charge reasonable interest rates and fees for every loan account. A financing firm reputed to have a good business attitude always gives concessions to its debtors or mortgagors.
- Build Up Your Equity
Your equity is your investment in the total cost of the property you intend to buy. Therefore, start saving up for your equity now. It’s often easier to save up for your investment when you’re self-employed. However, the decision of how much you’ll save depends entirely on you.
Meanwhile, build up cash equivalent to at least 20% of the total value of the property you intend to buy through a mortgage. Creditors will always ask for your share or your equity to cover the cost of purchasing the property.
The Bottom Line
When you work for yourself, you manage your own resources. However, if you want to qualify for a mortgage, your company needs to be in good standing financially. Your business should have excellent financial status for you to pass the credit evaluation criteria that banks and other financial institutions require.
Maybe your income today is already capable of owning a new property, or maybe not. Consider the insights in this article just to ensure mortgage approval before diving into the loan application processes.