For first-time buyers and especially those who are self-employed, the mortgage process can be a bit of a mystery. There's plenty that goes into it which many first-timers may not consider, and for self-employed people the process can be even more difficult. With that in mind, it's vital to lay the groundwork for a successful application process well in advance.
Before even entering the mortgage process itself, any would-be buyer – regardless of his or her employment situation – must do what they can to build a sizable down payment and improve their credit, according to Freddie Mac. This should include savings in the tens of thousands of dollars (ideally) and credit scores at least in the 700s to ensure maximum eligibility and access to the most affordable terms on a mortgage possible.
For self-employed people this is especially important because lenders are more reticent to extend credit to those without a more reliable income.
Putting it together
Typically, lenders – especially for self-employed applicants – are going to want a lot of financial records dating back years, the report said. While most lenders will have some variation in what they require, documents such as pay stubs or other proof of income, tax forms, proof of monthly expenses and so on are likely to be on the list. Typically, when applicants don't have long histories at their current jobs, lenders may require to them to provide longer-term employment information.
In addition, it's typically a good idea to shop around for a mortgage, checking in about eligibility and affordability with a number of different lenders, well in advance of the actual home shopping process, according to the Homebuying Institute. With pre-approval, the overall homebuying process will go a lot more smoothly, especially in today's ultra-competitive housing market.
With a pre-approval letter, hopeful buyers will be able to determine exactly how much home they can afford, and use that information to make better decisions about how to center their home searches as the spring market heats up.
What comes next?
When buyers have the ability to submit as much documentation as they possibly can about their financial situations, the mortgage and home shopping processes both become much easier to navigate, according to Ruby Home. Lenders will be able to make quick and easy determinations about eligibility – and for how much shoppers can borrow – while also giving sellers more certainty about a bidder's ability to get the mortgage turned around quickly so that they can complete the transaction in a timely manner.
Whenever inexperienced buyers, particularly the self-employed, are are entering the mortgage process, it's important to work with financial and real estate professionals to truly understand everything that will be asked of them and get a better idea of what they'll need to do to even be ready to submit a home loan application. As with many other things in life, a little bit of preparation can go a long way toward ensuring success.
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