What You Should Know About Buying A Home If You’re Self-EmployedApril 23, 2019 5:12 pm
Being self-employed in the city is tough, but as you start to think about buying a new home you may start to worry if your independent work can make it that much harder to nail down your first home. We have good news — it’s not necessarily harder, it just involves more paperwork.
Right now, if you’re employed by a company and you’re looking to buy a home for the first time, your pay stubs will be enough of a financial breakdown to determine your mortgage rates. Things are a bit different when you’re self-employed.
“Being a self-employed borrower, the criteria aren’t significantly different, it’s mainly that you need to have two years of tax returns in order to derive income for qualifying for a mortgage,” shared Donald Maita, CEO of NJ Lenders Corporation.
Some of the myths out there have it where self-employed individuals are burrowing into couches believing that they’ll never be able to own their own homes because they decided to work for themselves or start their own businesses. But, as Maita noted, it’s less about never being able to own and it’s more about doing due diligence when you are ready to start the process.
Talking to your accountant and really understanding how much you’ve made (not before deductions, but after) will truly help you understand not only what you may be able to afford, but also how attractive you may seem to mortgage lenders and prospective sellers. If you know you’re going to be buying a home in a year or two, now is the perfect time to start looking at your taxes through that lens. While deductions help self-employed individuals manage their businesses, they may be a mountain to overcome when it comes time to get a mortgage.
Experts suggest trying different kind of lenders, if a traditional bank won’t do, or alternatively working to get your taxes to a place that allows for this next big step.
“In order to accurately pre-approve someone for a mortgage, we’d have to have their tax returns up front before we issued them a pre-approval,” explains Maita. “[And], as long as they’re qualified, they would get the same rates that someone else would get and they’d put down the same down payment as someone else would.”
The collective sigh of relief you just heard is all of New York’s creative community settling into the fact that they can and maybe one day will be able to leave their Brooklyn lofts for a three-bedroom home with a washer and dryer. Because the 5-20% down payment is consistent with what everyone on the market will have to contribute to a new home and for all the nuances that you’re left to navigate, this is your friendly reminder that a realtor will always bring you more immediate comfort than an app can.