As a self employed business owner, you know that you are only as good as your word. While that may work in gaining your clients' trust, it takes more than your word to secure a mortgage loan. Proving income and ability to pay can be much more challenging for the self employed individual. Fortunately, you have the following guide to help you qualify for the fixed rate mortgage loan you desire.
Gather your income documentation
Proving your income is the most challenging aspect of mortgage qualification. Your annual tax forms may seem like the most straight forward proof of income, but these alone are not enough. Instead, you also need to have the following on hand:
- Your tax identification number. If you use an ID number other than your social security number, you will need to provide it to your potential mortgage lender.
- Your previous tax return in full. Be prepared to show returns for more than one year so that you can assure the lender that your income is steady.
- Quarterly tax statement. These may be requested as well, particularly if it has been several months since you filed your annual taxes. Quarterly tax statements can show that your income has remained steady into the year.
- Profit and loss statement. You are likely familiar with this piece of paperwork if you have ever applied for a business loan. Your mortgage lender will also want a copy to ensure your business is in no danger of going bankrupt.
- Proof of ownership. In some cases, your mortgage lender may require proof of business ownership beyond tax documents. Your business license is typically sufficient to this purpose.
Separate your personal and business life
Depending on your accounting method and the size of your business, you may have allowed your business and personal finances to intermingle. This can be alarming to a mortgage lender, since your home could be on the line if your business is ever sued or if your business goes bankrupt. Before applying, take the following steps to separate business from personal:
- Convert the business from a sole proprietorship to a limited liability corporation or S corp. This will effectively separate personal property from being a business asset.
- Invest in business liability insurance to protect you. This way the mortgage lender won't have to worry about a lawsuit or accident sending you into bankruptcy.
- Separate your business and personal bank accounts. Switch to issuing yourself a salary as opposed to simply withdrawing money from the business as you need it.
- Get a personal disability insurance policy. Some mortgage lenders are hesitant to issue a loan if illness or injury could send your business into bankruptcy. Having disability insurance assures the lender that you will have an income no matter what occurs.
For more help, contact a mortgage lender today like Pinnacle Mortgage Solutions today.Share