At the end of July 2018 we moved into our current house! We LOVE this home, but getting here was not easy. My husband and I are both self-employed and I’d always heard that because of that, getting a mortgage would be tricky, but I didn’t realize HOW tricky!
Here’s a quick video where I go over our story of buying this house:
As I mentioned above, qualifying for a mortgage was tricky. I first came to see it’d be an issue when we applied at our local credit union (where we’d had a mortgage for 10 years prior) and were denied immediately. Because we don’t have traditional jobs, they wouldn’t even look at us. Even though we had made regular payments and were never late with our previous mortgage with them.
It was so confusing to me- we’d gotten a mortgage on our first home in our early twenties making significantly less money, but now they wouldn’t even talk to us? Welcome to the self-employed life!
Here’s what I learned- before 2008, self-employed people like us could get a “SISA” or Stated Income, Stated Asset mortgage. On the one hand, these were great because they were a way for non-traditional workers to get a mortgage. The borrower told the lender what they earned and didn’t have to prove their income.
But because those numbers weren’t checked, the system was abused. This meant that people exaggerated their numbers so that they could get a bigger mortgage. Because of the financial crash, those types of mortgages have mostly beenbanned. Which makes it really hard to get a mortgage as a self-employed person now.
how to get a mortgage is you are self-employed
So how do you get a mortgage if you’re self-employed? Well, you get a normal mortgage, but you have to do A LOT to prove your income. Here’s what you’re going to need:
1. two years’ accounts or tax returns
What this means is that you have to use two FULL years of accounts. So if it’s mid 2019, this year doesn’t count. The banks will only look at 2017 and 2018- where you’ll have an actual tax return. If you only have one year, in most cases, you’ll be out of luck and need to wait a year.
The way a lender determines just how much money they’ll lend you is based on your average profit for those two years. If you’re like me and you started your business in one of those years, it can be a little scary to base a mortgage on!
Another thing to consider, is that if you have used lots of your business expenses to reduce your taxable income for your tax returns, that might be problematic when getting a mortgage. Why? Because while you paid less taxes, your income looks lower so you’ll qualify for less of a loan OR it might look like you can’t afford a home at all.
You’ll want to be able to show a track record of regular work that gives you a consistent income. The bottom line is that a mortgage company wants to see that you can pay back what you borrow. Your past income from those two years is how they determine if you can. The lender wanted to see that our income was trending up and our tax returns helped show that.
2. an accountant
Since my husband or I have been self-employed on and off for years, we’ve used an accountant that we love for a long time. She was a HUGE help in proving our income and thus getting qualified for a mortgage! Our accountant had to provide a signed letter stating our income and that our numbers were correct.
If you need to find to find an accountant just for getting a mortgage, you might want to consider keeping them around for tax time- we have found our accountant to be one of our best business choices!
3. a good deposit
As a self-employed or independent contractor, the sad news is that you’re not an “ideal candidate” for a mortgage. Because of that, a larger down payment can be helpful. When we got our house, we did a 20% down payment (which also helped us not have to get mortgage insurance).
In addition to a good deposit, it is helpful to show that you have an emergency fund so that you can pay your mortgage rain or shine. This extra cushion is good for you AND will help your lender see that you can afford the monthly payments.
When looking to make your deposit consider Unison. They can provide up to two times (and sometimes as much as three times) your downpayment which can help you get into your home with less money out of your pocket. They’re sponsoring a #UnisonDreamHomeContest right now where you can win $25K toward your downpayment. See details at the end of my blog.
Buckle up for this one, because it’s a bit of a pain! A traditional employee can just supply a copy of their W-2 for two years. But a self-employed person needs much more documentation.
Here’s a short list of what we needed (in addition to the tax returns and the signed letter from our accountant)-
- profit and loss statements
- balance sheets (aka bank statements showing what is going in and what is coming out)
- a signed letter showing our past occupancy (we needed one from our landlord where we rented for 6 months and what the rent was. Plus we needed a signed letter from our in laws where we stayed for a month before we could get in our house)
- IRS Record of Account transcripts for 2-3 years.
5. good credit history
As always, when borrowing money, good credit history is needed. With a mortgage, a lender will credit check you and your business.
Getting good credit isn’t something you can change overnight. But you can check your own credit and make sure you don’t have any unpaid or late debts. Also make sure to check for mistakes that could hurt your changes or obtaining a mortgage.
Luckily, my and mine husband’s credit is good (especially after paying off our debt a few years ago).
how we got our mortgage
So above is what you need for a self-employed mortgage, but I thought I’d tell you how we actually secured our mortgage. First of all, we applied to local credit union and banks- literally no one would look at us. Self-employed mortgages are more paper work for lenders plus the first year of income for us was a bit low so they passed on us.
Next, we looked at online companies to qualify with. We happened to have a friend who worked at one and that is how we found someone who would lend to us. When we finally qualified for a mortgage, it was much lower ($100,000 less) than we thought we would get. If we’d been traditionally employed and making the same amount, we would have qualified for much more.
We were hoping to move into Salt Lake City after renting in Florida, but we couldn’t afford a house with our loan amount. We could have gotten a small condo, but we wanted a yard for our son and dogs. And, of course, Salt Lake had a huge housing boom right when we wanted to buy. All of our friends and family live in that area, so we were bummed.
But we widened our circle. We ended up finding a house about an hour and a half from Salt Lake City in Logan. It wasn’t ideal, but I’d worked in the area and had really fell in love with it a few years ago. Luckily, Logan has lots of historical homes and we found one that worked for us!
happily ever after
Then we moved in and lived happily ever after…. Well, not really! We got inspections on our house and found that we had bought a meth house. This pushed our move-in date back one full month so it could be cleaned out. At that point, we’d been sleeping in family members homes and I was SOOOO ready for my own space again!
After the meth was cleaned out and we had a certified letter from the state of Utah that we could move in, we had more delays. Our lender was still needing paperwork to close. Every day for 2 weeks, we didn’t know if we’d be closing that day or if we’d need to provide more documentation. To say we had to jump through hoops with our lender is an understatement.
It took 50 days to close (when we thought it’d be 30) and, honestly, it was a bit of agony. But at last we were able to move in!
If you’re looking for a mortgage, I wanted to tell you about the company Unison. They are on a mission to make home ownership more attainable to every person that dreams of buying a home. Isn’t that great?!
Now for the extra exciting part! Unison is running a contest to giveaway a grand prize of $25,000 cash for a down payment to one lucky winner!!!
To enter, you just need to submit a short (less than 60 seconds) video talking about how their life would change if they could buy a home today. You can submit your video here, or post it on Instagram or Twitter and use the tag #UnisomDreamHomeContest.
Want to hear what I’d do with $25k to spend on my house? Watch this video to see!
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