Getting A VA Loan When You’re Self-Employed
With the advent of the internet, the number of self-employed workers has been on the rise. According to Pew Research, there were roughly 15 million self-employed Americans in 2014. That’s a staggering number, and it makes up around 10% of the entire active workforce.
With so many self-employed workers in America, lenders have had to come up with a way to find out if they’re eligible to get a mortgage.
For the most part, there’s no big difference between getting a mortgage through the VA or another program when you’re self-employed. As long as you’re VA loan eligible, all you’ll have to do is provide some information. Because some small business owners can have complicated finances, it will be easiest for both you and the lender if you prepare the right documents ahead of time.
Proving your income
The most complicated part of getting a VA loan if you’re self-employed is proving your income. While some self-employed workers know exactly how much they’ll make each year, many can have varying incomes – and year over year, this can mean growing or shrinking wages.
Generally, VA lenders will want to see your last 24 months of income. This shows them about how much you expect to make in the years to come. This information can also be used to see if your business is growing or shrinking. If lenders see your income shrink by a large margin (such as 10% or more) year over year, they’ll want to know why. Depending on your answer and the underwriter’s response, this could end up being a deal-breaker.
If you’ve recently taken over a family business, this process could get easier. A family business will have a proven track record of success, so you may only need to provide 12 months of income. Still, the more information you provide, the more accurate the lender can get.
Also, proving your income isn’t as simple as showing them the money you made. Lenders are required to use your taxable income when considering your mortgage eligibility.
For self-employed workers, this can get tricky. While someone could earn $60,000 in a year, their net income could end up being much lower – somewhere closer to $40,000. Your lender will require you to include every deduction, and that could make your income look lower.
Unfortunately, it can be harder to get approved for a larger mortgage with a lower income. It’s best to be prepared for a smaller mortgage than you might like to see.
Take care of your credit
When applying for a mortgage, credit can be one of your best friends or worst enemies.
Self-employed home buyers already have a hard enough time getting approved for large mortgages, so you’ll want to have everything working for you, not against you. Take care of your credit leading up to the mortgage application.
Higher credit can lead to lower mortgage rates, and that would reduce your back-end DTI. This means lower monthly payments and possibly a bigger, better home.
Keep your business and personal accounts separate
Whether you’re a contractor, sole proprietor or business partner, you’re going to want to keep your personal finances separate from your business accounts.
Proving your income and keeping track of all your deductions will already be hard enough, but underwriters are not going to like it if you can’t keep your personal finances and business finances separate. This is easier if you work alone, but with a business partner (or partners), this can be a bit trickier.
Don’t assume you won’t be eligible
Many self-employed veterans and home buyers assume that they won’t get approved for a mortgage and are surprised when they do get approved.
Don’t assume that you won’t get approved. While self-employed home buyers will have to take different steps to get a mortgage, they’ll start the process the exact same way: applying.
You can click here to begin the mortgage application process and get connected to multiple VA lenders, some of which may end up being perfect for self-employed veterans.