Oh the joys of being self-employed - the flexibility, the freedom, and the write-offs. But as soon as you start shopping for a home loan, you will find that all that flexibility and freedom gets thrown right out the window.

In its place are stacks of paperwork and documentation that your wage-earning counterparts can often avoid; tie this in with the current lending standards and you may just want to throw in the towel already. Well, all hope is not loss, you will just have to work a bit harder and endure a bit more to get your next home loan. But you are self employed, so hard work and patience shouldn’t scare you right?

Why All The Fuss?

• Lenders know that your income is quite sensitive. So while you may have made a killing last year, they know there is no guarantee you will do the same this year.
• You make how much? Are you sure? One of the benefits of being self-employed is the ability to write off certain deductions and business expenses - and boy do you use it.  As a result, your income shrinks significantly on your financial paperwork.
• Abuse of stated income and low documentation. Stated Income and Low Doc loans were catered towards the self-employed borrower due to the nature of their income. But because of recent abuse, lenders are now wary to accept such little documentation on their loans nowadays.

Gather Your Documentation. All of it.

• Income Verification - Lenders will want to see proof of your self-employment income through two years of tax returns, profit and loss statements.
• Asset Verification - If you claim a certain income, lenders will want to see your assets supporting that type of income. Have your bank statements, investment records, and any other savings documents ready on hand. In addition, some lenders may look at your bank statements to see if the cash flow of deposits supports your income as well.

Keep all this in mind months before refinancing so that you will have time to better prepare yourself.  I didn’t mention it too much in this post, but your credit and LTV better be in great shape too. The last thing you want is to take additional hits for low credit and little equity. If you were thinking of purchasing a home, start saving for your down payment too - the advertisements you see are typically aimed towards wage earners and lenders will like to see a larger down payment from you.  Read more about qualifying for a home loan today.

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