✅ Tips for self-employed homebuyers: a mortgage pre-approval guide

3 hacks for a smooth mortgage process ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ [Better] [Better]( This week's mortgage rates [Rate chart] [Rate chart]( Source: US average mortgage rates from [FreddieMac]( --------------------------------------------------------------- Better Mortgage Interested in today's rates? [See Better Mortgage rates]( --------------------------------------------------------------- #FundFact 💼 About 15 million U.S. workers are self-employed, making up about 10% of the U.S. workforce.¹ Things to know How to: Get a mortgage approval as a self-employed borrower How to: Get a mortgage approval as a self-employed borrower Being self-employed comes with benefits — you work for yourself, build your own schedule, and follow your own rules. But self-employment can come with complications, for example, proving you have a steady stream of income when you’re ready to get a mortgage isn’t always straightforward. That doesn’t mean homeownership is out of reach for the self-employed, but it may require a few extra steps and documents along the way. This week, we’ve put together a quick guide for you to use or share with someone navigating the mortgage process as a self-employed borrower. When qualifying for a mortgage, borrowers are considered self-employed if: - They own 25% or more of a business - They work as independent contractors or service providers - They receive a 1099 tax form instead of a W2 Since self-employed borrowers don’t fit into a predictable financial mold, lenders may see approving self-employed borrowers as a potential risk, compared to salaried workers that have a consistent and steady flow of income. According to Fannie Mae², when lenders are underwriting mortgage loans to self-employed borrowers they are required to analyze the following factors: - The stability of the borrower’s income - The location and nature of the borrower’s business - The demand for the product or service offered by the business - The financial strength of the business - The ability of the business to continue generating and distributing sufficient income to enable the borrower to make the payments on the requested loan. One element that is on the side of self-employed borrowers is time. Self-employed borrowers can prepare for a smooth mortgage process and improve their chances of getting approved by planning ahead. Here are three things that self-employed borrowers can take care of ahead of entering the mortgage process: Pay down debt and increase credit score In general, paying down existing debt can help lower your debt-to-income (DTI) ratio when applying for a mortgage, which indicates to lenders that you have more money available and demonstrates a healthy balance between your income and debt. Paying down existing debt can also help increase your credit score. While having a higher credit score isn’t a prerequisite for being a self-employed borrower, improving your credit score makes you a less risky borrower in the eyes of lenders. With Better Mortgage, the minimum credit score required for a conventional mortgage loan is 620, which is standard across the industry. Borrowers with a score of 760 or higher usually qualify for the most affordable rates. As of Q3 2023, the average credit score for borrowers taking out a mortgage loan was 770 flat.³ Gather qualifying information and documentation As we mentioned earlier, one of the most important qualifying factors as a self-employed borrower is being able to prove you have a steady flow of income, and that you’ll be able to make your monthly mortgage payments down the line. Qualifying for a mortgage as a self-employed borrower will vary on a case by case basis, however, typically you’ll want to pull together the following documents to submit to your lender for verification: Documentation for employment verification: - A copy of your business license - Proof of business insurance (if applicable) - Articles of incorporation, LLC or partnership (if applicable) - State or federal permits - Any other documents that prove when you began operating Documentation for income: - Two years of federal income tax returns (personal and business) - Two years of business bank statements and profit-and-loss reports (aka income statements) - Two years of personal bank statements - Borrowers using self-employed income from a company that has been existence for at least five years, and has had an ownership share of 25% or more for the past fie years consecutively, may provide one year of personal and business tax returns Consider avoiding tax write-offs Most self-employed borrowers take advantage of the various tax write-offs they qualify for through their business. Write-offs are typically beneficial because they reduce the amount of taxes owed, but in the case of getting approved for a mortgage they actually work against borrowers. Write-offs lower your taxable income, aka your qualifying income — lenders look at your taxes to see your income history and figure out your net income, which is the amount of money you make after your expenses are subtracted from your total gross income. To lenders, that smaller taxable income amount may qualify you for a smaller mortgage. If you want to increase the amount of qualifying income on your application, consider the long-term impact of writing off business expenses and avoiding write-offs while you can.* *Disclaimer: Better Mortgage and its affiliates do not provide financial or tax advice. You should consult your own advisors before engaging in any transaction. Hot tip “ Verified Approval Letters (VAL) and One Day Mortgage act as a strong resource for self-employed borrowers. Better Mortgage recommends borrowers complete the VAL process to ensure underwriters are review all self-employment income documentation to determine their purchasing power. The VAL allows borrowers to place offers with confidence knowing our underwriting team has already reviewed their application. On the other hand, One Day Mortgage is there for self-employed borrowers that have an accepted offer or those refinancing. Within 24 hours, we can determine if the borrower is eligible to proceed with their locked in rate!⁴ This saves the borrower tremendous amounts of time determining if there is a path forward for their new loan. Marissa Gurtler, Mortgage Loan Officer (NMLS #2010289) --------------------------------------------------------------- Better Mortgage Make strong offers with a One Day Verified Approval⁵ [Get started]( --------------------------------------------------------------- Press play Follow us on social to stay up to date with the latest mortgage tech, tips, and tools: Watch on [TikTok]( • [Instagram]( • [YouTube]( • [Facebook]( --------------------------------------------------------------- Better Mortgage Questions? Connect with a mortgage expert now [Apply today]( --------------------------------------------------------------- Quiz Fannie Mae and Freddie Mac are both GSEs. What does GSE stand for? - Government Sponsored Equity - Government Sponsored Enterprises - Government Sponsored Estate - Government Sponsored Employment [Better] [Better] [social]( [social]( [social]( [social]( ¹ [Pew Research Center]( ² [Fannie Mae]( ³ [New York Fed]( ⁴ Better Mortgage’s One Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation to Better Mortgage within 4 hours of locking a rate on a mortgage loan the opportunity to receive an underwriting determination from Better Mortgage within 24 hours of their rate lock. The underwriting determination is subject to customary terms, including fraud and anti-money laundering checks, that take place pre-closing and which may trigger additional required documentation from the customer. Better Mortgage does not guarantee that initial underwriting approval will result in a final underwriting approval. 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