How to Get a Mortgage When Self-Employed
FL Commercial Mortgage | Florida Private Money
There is nothing like the freedom of being your own boss. Sipping your coffee in the cozy quarters of your home while in your PJ’s. Doesn’t get better than this, right? While being self-employed offers many benefits, it can make other milestones more difficult to attain. One milestone being Homeownership – specifically acquiring a commercial mortgage.
Obtaining a mortgage while self-employed is more difficult but not impossible. According to bankrate.com, there are a few tips you should know prior to speaking with a lender.
According to the U.S. Bureau of Labor Statistics, there are close to 9-million self-employed people in the U.S. The income is not necessarily the issue because many people who are self-employed earn a reasonable income. However, with the strict lending standards, it is difficult to approve these people for a loan. Protocol requires borrowers to provide at least two years’ proof of tax returns and these don’t portray what self-employed individuals are truly taking home.
Being self-employed means you have a multitude of tax deductions related to your business – meals, entertainment, business credit card interest, etc. These deductions reduce the taxable income so during tax season a self-employed person won’t be depleted when filing.
Now, when a mortgage underwriter takes a glance at these tax returns they are looking only at income received after all the business expenses have been deducted. Limiting what a self-employed person can get approved for even though they are taking home more income. In some scenarios, the borrower can even be rejected entirely.
Finding the right Lender
Shopping for the right lender may help. Some mortgage lenders will understand and allow specific deductions to be added back into the total income.
Planning is Key
If you are self-employed and seeking to obtain a loan to purchase a commercial property then you may want to take your time to prepare. Two years prior to your purchase you will want to write off fewer expenses. Do not commingle your business finances with your personal funds and if you already have you’ll want to get this cleaned up prior. When you can, always use your business credit card rather than your personal.
Lenders will not like seeing declining income from one year to the next.
Consider a Co-signer
While this may not be the option you had hoped for, it may be the easier way to obtain what you want. Find someone with a high income on their tax return or if you are purchasing solely for investment, maybe consider downsizing on your investment.
Being self-employed doesn’t mean obtaining a mortgage will never happen. With the right lender and some research and preparation on your end – being a commercial property owner is on your horizon.