Applying For Mortgage for the Self-Employed in Los Angeles
Applying for a mortgage as a self-employed
individual in Los Angeles has never been a walk in the park. The odds stacked
against folks in this financial category when it comes to securing a housing
loan are so great that many are starting to think that is impossible.
While it can be quite difficult, a mortgage for the self-employed in Los Angeles or anywhere in the United States of
America can still be secured if you know how to go about it. One thing you will
require is a lot of documentation which is necessary since your income is not
dependent on an employer.
Many lenders are skeptical about giving
mortgages to self-employed folks because they are not certain if you will get enough
income that will be sufficient for your monthly repayments. This is one major reason
W-2 employees secure this kind of loan more easily.
Apart from this, due to the extra paperwork that
is required before this housing credit can be provided to a person who is not
employed by an organization, most creditors choose to avoid giving out this
mortgage altogether.
This bias can be very discouraging when viewed
from the surface; however, as a self-employed individual, you can still secure a
loan by becoming a better attractive candidate and we will show you how to
become one.
But before we do that, let us get a better
understanding of the disadvantages of applying for a mortgage as a
self-employed individual.
Disadvantages
of Applying for a Mortgage as a Self-Employed
Most creditors do not consider independent business owners as perfect borrowers. They are not considered creditworthy since their income is not easily verifiable. This is in stark contrast to employees who can provide the lender with a W-2 upon request. Hence, they have to deal with more paperwork and documentation to show their income and financial history.
Another reason it is difficult for independent
business owners to secure a mortgage is that in most cases, the business expenses
are used to cut the taxable income that is placed on tax returns. Hence, most
creditors cannot ascertain if the individual who is applying for the loan will
be able to make payment.
Furthermore, some lenders, most especially
banks prefer LTV (lesser loan-to-value) ratio. In other words, they require
that your need to make a down payment that is larger to serve as a sort of
guarantee of sorts. Visit https://www.investopedia.com/terms/l/loantovalue.asp to learn more about the
loan-to-value ratio. While the last disadvantage might seem like it is peculiar
to the self-employed; however, it is not the case.
A lot of creditors these days require this from
all kinds of borrowers before they approve the loan. You should also know that
the requirements differ from lender to lender. Hence, you should look for a
lender with requirements that are best suitable for you.
Becoming
an Attractive Mortgage Candidate
There are a few things that you can do as a
self-employed to improve your chances of securing a housing loan. Here are some
of them below:
1.
Create a Track Record as a Self-Employed
Everyone loves a good track including financial
credit institutions. Hence, one of the best ways to improve your chances of
securing that loan is to show them how capable you are over the years despite
being independent.
Therefore, create a history that stretches back
to a minimum of two years, if you could go further back the better. The idea is
to use this history to portray yourself as having a stable income.
2.
Offer a Huge Down Payment
Remember we talked about how most lenders are asking for huge down payments? Well, the thing is you can use this to your advantage if you have some extra cash to spare. All you need to do is offer a huge down payment.