Lenders will ask for your records in detail. Some lenders might hesitate when giving you a loan since you don’t have a steady income. Some lenders might not at all get into the process to escape the difficulties faced while providing loans to self-employed people.
You can increase your possibility to get approved for the loans. Let’s see how.
How To Increase Your Chances of Getting Approved for a Mortgage Home Loan?
If you’re a businessman, then you’ll have to take care of the following to qualify for a mortgage loan:
1. Optimize your DTI
The DTI or debt-to-income ratio is a financial measure that is checked by lenders before they approve a loan. It compares a person’s monthly debt payments with his/her monthly income. Try lowering your debts and increasing your income. A mortgage calculator can help you to optimize your DTI. Ideally, lenders prefer a debt-to-ratio lower than 36 percent.
2. Maintain a high credit score
Your credit score tells the lenders how responsible a borrower you are. It indicates your ability to pay back loans on time. A better score guarantees an easier process of loan approval. Try to pay off outstanding debts. Pay your loans on time. Try to keep your balance less than the mentioned credit limit.
3. Offer a large down payment
This is an upfront payment you make to buy a home. A good down payment hints to your seller that you are in a good position and have enough cash to handle the other matters. Also, larger down payments indicate a low loan-to-value ratio. This means your interest may also be lower. Moreover, a larger down payment means a smaller home loan for your house.
4. Show that you have a stable track record
A minimum self-employment history of two years, a stable income as well as your tax records might stand as a guarantee for you. Lenders might check these as well as your business statements before approving a loan. That includes a list of monthly payments and debts of your business, a list of assets which includes your savings accounts as well as the various investment accounts.
You will also need to show extra sources of income. You might also need to produce proof of your business statuses like statements from the clients or your accountant.
5. Have cash reserves
Try to have a good cash reserve in your emergency fund. This will assure the lenders that even if your business fails, you will have money to pay off the loans.
Other Loan Options for You
If you aren’t getting a conventional loan, there are other alternatives for you. You might also choose from the following:
- FHA loan: This is insured by the Federal Housing Administration (FHA). They require a minimum down payment of 3.5%. This loan is targeted toward low-to-moderate-income borrowers.
- Bank statement loan: Here, the lenders look at the last one-two year of your bank statement and decide whether to offer the loans.
So, getting a mortgage home loan for a businessman isn’t that difficult, given that you do have alternatives to conventional loans. If your business is stable and growing well, then getting a conventional loan too won’t be a problem for you.