According to a recent reporting by Forbes, around 15 million Americans are self-employed and 38% of the US workforce, which is roughly around 64 million, did freelancing in 2023. This shows that more people are opting for freelancing and self-employment as they are rejecting the traditional 9 to 5 work day. The reason why the next generation of workers is choosing self-employment is because it offers better working hours, more flexibility and more earning potential. The only set back is that such a large demographic is held back from buying their own home due to the lack of traditional documents. But with self-employed loans without proof of income, you can work towards purchasing a house.
Let’s take a closer look at the top 5 points you need to consider when securing self-employed loans without proof of income.
Top 5 Tips & Tricks for Getting the Best Self-Employed Loans!
1. Choose Alternative Documentations for Your Unique Income Source:
As most traditional lenders such as your local credit unions and banks often ask for W-2s from the past one or two years and income tax from the past 2 years. Both of these as a self-employed buyer, you simply do not have due to your unique income source. Thankfully, you can still pay for self-employed loans without proof of income by simply showing the following documents instead:
Personal Bank Statements from the past 12 to 24 months.
Tax returns from the last 2 years.
Client contract details.
Profit & Loss statements from the last few months, if you are a business owner.
By submitting these supporting documents, you improve your chances of securing self-employed loans without proof of income.
2. Improve Your Credit Score and Unlock Its Potential:
Credit score as well as credit history play a pivotal role in securing self-employed loans without proof of income. Even if you don’t have a traditional source of income, you can still increase your chances of getting a self-employed loan by having a good credit score. A recent survey showed that a credit score of 700 improves your chances by 20%. But if you have less than perfect credit score such as 580, you don’t need to worry. Some lenders such as Dream Home Mortgage can help you secure a loan option that is the right fit for you.
3. Take Your Debt-to-Income (DTI) Ratio into Consideration:
A Debt-to-income ratio is the percentage of your monthly income that goes towards repayment of your debt or loans. When it comes to applying for self-employed loans without proof of income you need to have a low DTI. A high DTI worries lenders as they are unsure that you will be able to repay back the loan in time on a regular basis. If you have a not so perfect DTI ration then you should consider waiting a few months before applying for a loan. In that time, you should pay back your pending debts, loans and improve your credit history. A healthy DTI ratio is below 43% so work towards this percentage.
4. Go with a Larger Down Payment:
If you are a self-employed buyer with a credit score of 580 then you should consider paying a larger down payment upfront. Most lenders will generally ask you to deposit a 20% down payment upfront. When you pay such a large down payment, you eliminate the need for paying Private Mortgage Insurance (PMI) which can help you save money and stay in budget. If you don’t have a large down payment ready then you also get a loan for just 3.5% as well but with different terms and conditions. Therefore, before you go house hunting, you should save up for an adequate down payment.
5. Save Up for the Closing Costs:
Once you have the down payment ready, the other payment you need to worry about is the closing costs. Closing costs are the final payments you need to make when you have purchased the property and it is usually around 2% to 5% of the house’s value. You can also pay the closing costs using your retirement funds, such as 401(k), or investment accounts, such as stocks or bonds. All you have to do is get 2 to 3 months' worth of statements from the banks. Make sure that you consult your financial advisor before dipping into your retirement accounts.
Where Can You Get the Best Self-employed loans without proof of income?
As challenging as it is to secure self-employed loans without proof of income, the fruit of your labor doesn’t go to waste when you become a proud homeowner. You will just need to be well-prepared and have the right documents on hand before applying for these loans. If you want more information or a reliable mortgage broker on your side, then you can get in touch with Dream Home Mortgage. Under the able of leadership of Mr. Hussein Panjwani, thousands of self-employed buyers have achieved their dream of becoming homeowners. It is high time that you added your name to that list and become a proud owner of your own home. So, what are you waiting for? Book a free 30-minute consultation today!
