Understanding How Mortgages Work for Home Buyers with Non-Traditional Income

Are you among the few people who can call themselves a boss today and are wondering what you need to buy a home? You might also be wondering whether a self-employed person can get a mortgage. As a self employed individual it can be quite challenging to get a home loan. There are so many factors that needs lenders consider when determining whether you have a stable income or not. This is in addition to paying attention to rules that applies to people seeking loans.

When an individual applies for a loan with Shop Rates, their income is first reported and this is with the aid of conventional documents like payment slips and even letters from employers. However if you are self-employed you might not have access to these documents. Another factors that most lenders consider is consistency with income and most self employed individuals do not always have ways to prove that their income is consistent enough.

This leaves one wondering what options are available for them to utilize. Continue reading for more.

Demonstrate Income Stability

In many cases a self employment income is usually considered to be stable and effective if the individual has been employed for at least two years. This is one of the key factors the organization will look because they mostly pay attention to long term income patterns for both self employed and traditional employee. It is important to be able to demonstrate your financial health and monthly income.

Basically when applying for a mortgage you will need to provide proof of your income and there are many channels to do this. For instance you can submit our personal tax returns over the last two years or a business tax returns over the last two years. Another option is to submit your profit and loss statement and balance sheet especially if you are an independent contractor.

Know your Debt to Income Ratio

As mentioned earlier there are many calculations that lenders use when determining how much they can let you know as well as their willingness to extend the loan offers they provide you with. Debt to income ratio is one of the common approaches they utilize. This is a number that describes your percentage of debt you have with respect to your income. Basically outstanding credit card debt, car or student loans and other expenses like insurances are put into consideration. If you have a high ratio you might need to consider paying off your debs to lower the ratio and ensure that your loan application is attractive to lenders.