What Are The Difficulties Involved In Getting Mortgages For The Self-Employed?

Finding the Right Mortgage can be Tricky at Times

Owning a business and being responsible for your income and taxes is the holy grail of independence. There is no greater feeling than working hard and putting yourself in a position to earn substantially more than you would have if you were employed. The hassles of running a business are undeniably tough at times, but the gains are more often than not, worth every trouble.

When all these is said and done, there is a need to have a full understanding of the difficulty level involved in getting a mortgage among the self-employed. Unlike the employed, being self-employed presents a unique set of circumstances in as far getting a mortgage is concerned. Although there are numerous mortgage products available in the market, it can be daunting to find a product that suits the self-employed.

Herein we will explore the various challenges that make it difficult for the self-employed to get mortgages.

#1. The Difficulty Of Verifying Taxable Income

One of the major problems of being self-employed is being able to prove your income. For mortgage loans or any loan for that matter, if you cannot make the payments, you do not get the loan. Herein lies the challenge that many self-employed individuals face; proving that they have a steady income flow to meet their monthly obligations.

It is important to note that many of the self-employed businesses do not necessarily have a steady monthly income, but rather rely on the seasonal fluctuation to make the majority of their income. In this regard, if a business owner tends to earn the majority, say 85% of the annual income, of income during winter it would be difficult to prove that they have a reliable stream of income when they search for a mortgage during summer.

#2. The Risk of Having Too Many Deductibles

For the self-employed, a crucial element of succeeding is keeping cash flows high whilst negating the liabilities to the minimum, including tax liabilities. It is, therefore, common for the self-employed to engage accountants to deduct as much as possible to reduce the amount of money they pay taxes. In doing this, self-employed individuals tend to reduce their net income and inadvertently, reduce their ability to qualify for higher mortgage loans.

In this regard, maintaining a balance between tax liabilities and positioning yourself for higher mortgage loans should ideally be part of doing business for the self-employed.

#3. Your Borrowing Capacity/ Your Credit Scores

The final element that makes it very difficult for the self-employed to get mortgages is their credit scores. More often than not, running a business involves taking loans to ensure that your business is a success. This may involve exhausting all the credit avenues available, thereby stretching their credit lines.

Inadvertently, in taking every loan available to ensure success in business, the self-employed usually hurt their credit scores. Borrowing so much causes one’s credit score to drop, thus making it very difficult for the individual to get high-quality mortgage loans.

As it is with many of the loan products, there are plenty of mortgage products for the self-employed. However, understanding what affect you getting the loans has, makes it easier to plan for it as a self-employed.