Advice for self-employed home buyers and owners

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Looking to take advantage of low prices and low interest rates to refinance your home or borrow to upgrade your housing? If you’re self-employed, qualifying for a mortgage is a bit more involved for you than for your W-2ed neighbors.

For you self-employed, here are a few tips to help you get your mortgage application approved:

1. Prepare for a detailed analysis of your income by presenting your lender with income tax returns from the last three years.
2. Provide evidence substantiating year-to-date income — e.g., profit and loss statements and monthly bank statements on your businesses, securities activity and income property.
3. Highlight clients with whom you’ve had long and consistent contracts, along with charts or spreadsheets on your monthly income and expenses for the past couple of years.
4. Provide a balance sheetAn itemized, mathematical presentation of an individual's net worth. This is determined by subtracting their liabilities from the current fair market value of their assets. presenting all your assets and long-term liabilities so the lender can judge your wealth as a source of repayment.
5. Maintain cash reserves and be able to document the source of the deposits – e.g., an inheritance or simply accumulated wealth and earnings from your occupation.
6. Pay off all credit cards and other short-term debt by carrying no balance beyond current monthly charges.
7. Be prepared to offer an explanation for any income fluctuations and extraordinary flows of money.
8. Apply for your mortgage with a local community bankA small and local bank not tied to the "too big to fail" Wall Street banks. or credit union since these smaller lenders will take the time to process a mortgage application and have personnel who can make discretionary decisions. It is also important to make sure the lender understands a freelancer’s tax return, since its adjustable gross income (AGINet income and profits from all three income categories (trade or business, passive and portfolio)) is very different from taxable income.