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.
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.
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:
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.
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.