Being your own boss has a lot of perks like a flexible schedule and the ability to set your own dress code. (Hello slippers!) There are also a lot of tax write-offs. These are awesome right around April, but can cause a few headaches when it comes to securing a mortgage.
Does this mean you can’t buy a home when you’re self-employed? Absolutely not! It just means you’ll need to do some advanced planning.
Here are a few keys to keep in mind as you start planning:
2 Years of Steadily Rising Income
Because you’re self-employed, your income is considered more volatile than someone who collects a traditional paycheck. In order to be confident about your ability to keep making monthly payments, your lender will require you provide your income tax return for the last two years.
And over a two-year span, they’ll want to see your income steadily rise. This provides additional confidence in your financial footing.
While tax write-offs do decrease your claimable income, they also allow you to keep more money. Rather than use it for a fancy vacation or dinners on the town, save it for your down payment. The more you can put down, the more attractive you will be as a borrower.
Shore up Your Finances
How’s your credit score? What’s your current debt-to-income (DTI) ratio? In order to get approved for the most favorable rate, make sure you shore up your finances. Check your credit. Look at the report and make sure there aren’t any mistakes. Reduce and eliminate any large monthly payments. This will help reduce your DTI ratio.
Talk to a Lender Early
The earlier you start planning the better. Working with a lender from the beginning can help give you a clear idea of where you stand and what moves you need to make moving forward.
Give me a call, let’s get started.