Ability to Pay Rule – Mortgages for the Self Employed

Self Employed Homebuyers Applying for a mortgageMortgages for the self employed can still be done, despite the higher scrutiny placed on those who work for themselves. That only compounds with the U.S. Government’s Ability-to-Pay rule that makes it more of a challenge to obtain a mortgage as avoidance of another mortgage crisis. But despite the possibility of those self-employed not being able to buy a house who easily qualify starting in 2014, proper documentation can still be done to qualify. You just have to prove that you’re successful and not successful only in theory.

Showing Full Documentation

Not everybody has to show every morsel of financial information in obtaining a mortgage. And even if that might have been one reason why there was a mortgage crisis in the last decade, a self-employed person will always have to show more documentation than someone working with an employer. In order to avoid any crises again, lenders are going to ask a self-employed person for tax records to prove their net income.

In general, you’ll have to provide about two years worth of tax records. And before you borrow, you’ll have to fill out IRS form 4506-T that requests tax receipts your lender will examine. You may also be asked for a business license, plus a written document from your personal accountant proving your income.

While this might sound like a protracted experience, you still might be able to obtain a loan by providing much less.

Proving Your Financial Standing

You do have other options you can use if you don’t want to go to those great lengths in obtaining a mortgage. Overall, proving you’re successful as a self-employed person is your secret weapon in avoiding going the full documentation route. This can mean simply showing you have an excellent credit score (something very easy to obtain in tangible form), plus proving a low debt-to-income ratio.

Through your financial records, proof of a steady income and no debts goes a long way in making a lender less nervous. It also doesn’t hurt to bring bank statements to show your lender you have cash reserves on hand to pay your mortgage each month in the event of a temporary income shortage. If you have extra money, you should also think about providing as large of a down payment on your house as possible to safeguard having a long-term mortgage.

Keep in mind that if you can’t prove some of the above and you won’t provide full documentation, any loan you receive could be very high interest due to the risk.

Regardless, don’t let Ability to Pay rule stop you from obtaining a mortgage if you’re self-employed. Let GetPreQualified.com help find you a mortgage professional to help you calculate what your mortgage rates might be. Look at the top of our website to get started.

Everybody deserves a mortgage for a new home, and we’ll help you take the first critical steps.