If you are self-employed, you may wonder how you can get a mortgage loan in Oregon. Good news: we are here to help. In this article, you’ll learn what documents you need, the financial information you must provide and where to get a mortgage. Read on to find out more about residential mortgage lending in Portland Oregon.
Changes To The Rules
Before the financial crisis in 2008/2009, obtaining a mortgage loan in Oregon as a self-employed individual was relatively easy. Freelancers, contractors and business owners would simply submit income statements or bank statements proving their earnings.
However, with new rules that came after the crisis, that changed. Schedule C taxpayers had to provide more evidence than before that they could satisfy the repayment requirements of the loan, reducing the likelihood of another banking collapse.
How To Qualify
Qualifying for a self-employed mortgage, however, is not as challenging as you might imagine. Yes – there are some additional requirements, but these are mainly financial checks, not increased economic barriers.
What Lenders Want To See
Lenders want to know that you can pay them back before they issue the loan. Therefore, they will look for certain financial signals to give them confidence. These include:
- How strong your business is financially (i.e. whether it is making a consistent profit and the size of that profit)
- The type of self-employment that you have (some sectors are more economically fragile than others)
- The stability of your income (do you earn roughly the same amount from month to month?)
- The likelihood that you will continue to make money in the future (something that could change if technology disrupts the industry in which you work)
Mortgage professionals will then ask you to provide documentation to back up your application. The range of documents that you will need to provide can be quite extensive.
Documents Demonstrating Repayment Ability
Before you apply for a mortgage, you will need to seek out documentation that proves that you have a steady, reliable income. Ideally, you would have records going back five years or more as this helps to convince mortgage lenders that your long-term financial position is sound. However, you can still apply even if your earnings were choppier in the past.
Lenders will ask for the following documentation:
- Personal tax returns
- Profit and loss forms
Personal tax returns include W-2 forms if you pay yourself via your company. Profit and loss forms might include K-1, Form 1120S or Schedule C, depending on the type of enterprise you own.
If you’ve been employed for less than two years, you may still be able to take out a mortgage. Lenders will insist that you have at least twelve consecutive months of being paid and demonstrate two years of continuous employment (including periods of non-self employment). You may also need to answer further questions on your education and training to convince the lender that you have the necessary skills to continue earning at your current level.
Documents Demonstrating Employment
You may have good financial records but, as any experienced lender knows, circumstances can change quickly. Self-employed people can often find themselves out of work.
Proving that you have employment (and will do so for the foreseeable future) can be a little tricky. You will need to collect a paper trail showing that you are busy and always taking on new clients. Evidence might include:
- Getting your current clients, personal accountant or professional organization to send an email to the lender confirming your self-employment status.
- Giving the lender business or state licenses proving your capacity to work.
- Providing evidence to lenders that you have sufficient insurance.
Advice For Getting A Mortgage As A Self-Employed Person
As someone who is self-employed, it is your responsibility to prepare your finances for a mortgage application. Ideally, you should work towards improving your financial position as early as you can to maximize the likelihood your lender will accept you.
Separate Your Business Expenses
Sometimes, it is tempting to charge business expenses to your personal credit card. But if you do this, you will increase your credit utilization rate, and that could adversely affect your credit score.
Instead, keep separate personal and business credit cards. Don’t mix the two. If you require extra money from your firm, withdraw it first.
If you can improve your credit score, you may be able to qualify for lower rates. Borrowing for a mortgage becomes highly affordable once your score goes above 750.
Reduce Your Debt-To-Income Ratio
Your debt-to-income (DTI) ratio is the proportion of debt that you own compared to your income. So if your debt is $10,000 and your income is $50,000, your debt-to-income is 0.2. In general, lenders won’t want to lend to people with DTIs over 0.5. If you have a debt this high, you will need to focus on reducing it before you take on even more debt. If you take out a mortgage with a high DTI, you may find that you are unable to repay any of your loans.
Establish A Track Record Of Success In Self-Employment
Lenders can sometimes be sceptical of your ability to repay mortgage loans over a long period as a self-employed person. Compared to salaried workers, you don’t always have the same level of financial stability.
However, if you can establish a track record of success, lenders are often substantially more willing to take a chance on you. As discussed above, make sure that you have more than two years of income history.
Residential mortgage lending in Portland, Oregon is alive and well including for self-employed people like you. You just need to provide the proper documentation and proof of earnings to successfully apply for a loan.
Ideally, you should work with a mortgage lender, such as The Lindley Team. Unlike banks, mortgage lenders provide borrowers with more choice – sometimes offering access to hundreds of mortgage products. This way, you are more likely to get a loan that suits you.
If you’d like to start the process of getting a home, come see us at the Tammi Lindley Team. We are Portland’s premier mortgage lenders, offering hundreds of mortgage products so you can pick the mortgage that matches your needs. Contact us today and start the process of owning your dream home.