Is your job your credit in Houston? How self-employment affects home buying

Self-employed professionals become disappointed when they can’t qualify for a mortgage. This may lead you to believe that your job is your credit when it comes to buying a home in Houston TX. The reality is that you can fulfill your homeownership dream even if traditional lenders have rejected your home loan application due to non-verifiable income.  

Here at Shop Owner Finance, we believe that financial discipline is more important than your employment history and credit score. If you are disciplined, you can explore alternative financing options such as owner financing.

We have helped hundreds of self-employed professionals get into the home of their dreams with the help of owner financing.

Your job is not your credit when buying a home in Houston TX

There is no denying the fact that verifiable income plays an important role in mortgage approval. It helps lenders evaluate the risk in lending money to a borrower. It is for this reason that salaried employees get approved for mortgage easily.

Many self-employed professionals make a lot of money, but the lenders are not able to verify their income. The reason is that they don’t receive W-2 form with details of their annual income and withholding amounts.

The onus of reporting your income as a self-employed professional falls on you.  Schedule C (Form 1040) can be used to report income, expenses and losses from your business or profession (if you are a small business or freelancer). You should consult with a certified accountant to learn how you can report income.

The problem is that Schedule C, Schedule E, Form 1120s, K – 1 or your profit and loss statement may not be enough for mortgage approval. The paperwork for income verification is cumbersome. The lender may ask you to submit additional documents such as business license, liability insurance, bond insurance, a letter from clients explaining services rendered by you and a certificate attested by a CPA, EA or tax preparer.

Even when you have submitted all these documents, there are no guarantees that you will get approved for mortgage. The fact that a borrower is making a regular and steady income is more important than how much money he or she makes. Large and irregular deposits can harm your prospects of getting approved for a home loan. On the other hand, a regular income will help you qualify.

Exploring alternative options

Owner financing – also known as seller financing – is your best option if your mortgage application has been rejected due to non-verifiable income.  

To learn how owner financing works, click here. You don’t need employment history, credit score or verifiable income in most owner financing programs. (See also: Different types of owner financing programs in Houston).

Things to keep in mind when applying for a mortgage

• As a self-employed professional, you should keep a close tab on your credit score.  Order a free copy of your credit report and find out if your score is good enough to qualify for a mortgage.
• Maintain a low credit-card balance and don’t apply for other types of loans such as automobile loan if you are planning to get a mortgage.
• Pay your bills on time.
• Maintain a proper record of your income and expenses as a business owner or freelancer. Enlist the services of a CPA to regularly report your income.
• Keep your business expenses separate from your personal expenses. You should also maintain separate accounts and books for business and personal financial records.
• You probably love deductions and try to report minimum amount of taxable income to save on taxes. While you may save a few bucks, this strategy can be very damaging if you are planning to apply for a mortgage. Lenders take into consideration your taxable income, not your total income. Reporting too many business expenses will harm your prospects of getting a loan.
• Another important factor that the lenders take into consideration while evaluating a home loan application is the loan-to-income ratio. Apply for a smaller loan. You may need to make a larger down payment to keep the ratio of the loan to your income low. Here at Shop Owner Finance, we believe that you should anyway keep your down payment 15 percent or more. If your down payment is less than 20 percent, you will need to pay Private Mortgage Insurance (PMI).

Being self-employed shouldn’t stop you from becoming a proud homeowner. Set an appointment today to learn how you can buy a home with seller financing in Houston.