You may think that getting self employed loans to be next to impossible. You might have even tried in the past and been turned down by your local bank. Or the many hoops you’d have to jump through seemed too daunting. Luckily some loan companies have a more updated view of self employed applicants.
Owning your own home has many perks. You build equity instead watching monthly rent amount to nothing. A renter paying $1300 month vs a home buyer paying $1300 a month gains equity in the home every month. That’s especially nice in a house market where the home value is also increasing, building your equity even more.
Increase the Odds for Getting Self Employed Loans
As of 2016, there were over 15 million self employed persons in the United States. I would guess with the trends toward entrepreneurship growing that number continually goes up. People, more and more, are realizing what being your own boss can be like. And luckily some financial institutions are recognizing this trend.
Still there are some things you can do to better guarantee success in being accepted for a loan:
- Have a valid business. Register it and have a business license. Even better, form an LLC company.
- Pay yourself a wage with a W-2 instead of drawing money as an owner.
- Have good financial records. Be organized and complete in your bookkeeping, for the business and for your personal finances.
- Use separated checking and savings accounts for your personal use and business use.
- Reduce your debt load. Evaluate your spending. Pay down credit cards and other debts. Lenders look for a 36% to 43% or lower the better.
- Work on your credit score. Check for errors that need corrected.
- Don’t apply for other new credit right before you apply for a new loan. Don’t be tempted to apply for new credit cards, a new car loan, or credit lines for new furniture or appliances.
- Consider saving more for a down payment. The more money you bring to the table increases the chance of being accepted, plus decrease your interest rate and the total you must pay back.
- Don’t apply for more than what you can pay. Be realistic and consider what amount will be possible for you to afford each month. Don’t stretch yourself too thinly. Figure for a month mortgage premium that is not over 28% of your pre-tax monthly income.
Find the Right Bank
It pays to check around, beyond the bank that’s down the block. More banks that offer self employed loans are welcoming individual applicants that don’t fit the traditional mold. They offer more options to applicants who don’t fit the traditional lending requirements, including employment status.
Learn what types of loans they offer, what each one requires, and you’ll have a better idea which type of loans fits your needs. And, also you learn what hidden costs you may need to ready for, such as closing costs. Usually closing costs are 2 to 5%. Down payments range from zero to 20% dependent on the loan type.