Finding A Self Employed Home Loan Can Be Hard
Even before the housing bubble and subsequent credit crisis made lenders extremely wary, it was difficult for the self-employed to find home loans. Traditionally, verifying income is notoriously hard because of the condition of self-employment. As business conditions change, it is next to impossible to accrue the right documentation to prove income levels. Thus, obtaining home loans has always been a challenge, in addition to the usual ones that the self-employed face.
Finding a lender willing to advance a self employed home loan is especially challenging in the midst of the current recession, which is looking more and more like a depression. The biggest problem is convincing the lender that a self-employed borrower is even a safe bet, let alone a good one. The expectation in the past has been for these borrowers to receive much higher interest rates than usual, in addition to having limited negotiating power.
Fortunately, there are steps to take that will help bring self-employed borrowers closer to their goal. Despite the tendency for lenders to treat self-employed people the same way they treat securities backed by investment property mortgages, these are still effective at making it easy for the lender to trust the borrower.
The most important step is making a significantly large down payment, about twenty percent of the total balance. Making an even larger payment may be necessary if the lender is particularly skittish. Most lenders think that the more equity in a home, the less likely it is that the borrower will skip out on their loan. Whether or not that is true, making a large down payment builds significant equity, which makes the lender trust the borrower a little more.
Having access to plentiful cash reserves is also a good step. Demonstrating that the borrower has access to liquidity will ease the lender’s fears. The borrower can still make their payments.
Tags: investment property mortgages, self employed home loan
