Buying a home can be one of the most exciting investments you’ll make during your lifetime. But as you know, buying a home is more than just analyzing neighborhoods and a particular front porch’s relaxed factor.
You may need to tap into a mortgage lender — and if you do, you’ll need to be pretty open about your job, your income and other assets. Self-employment can make all of this a tad more complicated. Benzinga has compiled expert advice so you’ll be able to hone in on the best mortgage lenders for your employment situation.
Lock in the Best Interest Rates on the Market
Tip: Get Quotes From 2-3 Lenders
The Best Lenders for Self-employed:
- Luxury Mortgage: Most Flexible
- First National Bank: Get a Mortgage without Tax Returns
- Better.com: Competetive Rates
- Eave: Best for Customer Service
- Quicken Loans: Best Overall & Fastest Processing
- J.G. Wentworth: Custom Options
- Zillow: Local Lender
- Guaranteed Rate: Best for Personalized Support
What to Look for in a Mortgage Lender
It’s not always a good idea to be picky when you’re looking for a mortgage — each mortgage application puts a hard inquiry on your credit. Do your homework ahead of time and you might be able to avoid unnecessary dents in your credit.
Ask yourself several questions as you evaluate mortgage lenders:
1. What Interest Rates do they Offer?
Always compare various lenders’ interest rates, which tell you how much money you’ll owe the lender over time. You’ll also have to consider the terms of the loan — such as whether or not the rates are fixed or adjustable, and how many years you have to pay the mortgage — instead of just basing your decision on low rates. A fixed rate means that the interest rate you were given when you took out the loan will never change for the life of the loan, whereas adjustable rates can change.
2. What will the Down Payment be?
You’ll want to know how much you’ll have to put down if your lender asks for a down payment. A down payment is a deposit you’ll have to put down when you buy a home. Don’t forget to consider closing costs — such as appraisal costs and property taxes — because you’ll need to include that in your savings as well. Self-employed individuals are required to put down more money (roughly 20% total) than those who are not self-employed, especially if you don’t have tax returns or meet other requirements that lenders usually ask for.
3. What Terms are Available?
There are terms on a mortgage that dictate how long you have to pay it back. These generally range from 5- to 30-year terms. Will you be able to adjust the terms if your financial picture changes at some point in the future? For instance, will you be able to switch to a 30-year loan if you need to?
4. What do I Need to Provide in Order to Get Approved?
Most mortgage lenders require more or less the same documentation — including, but not limited to — your tax returns, bank statements and credit report. Ask plenty of questions about the extras you’ll need to provide because of your self-employed status.
5 Tips for Finding the Best Mortgage Lenders for Self-Employed
You’ll also have to find a lender that’s willing to work on you based on your unique employment and tax situation. Here are some tips for finding the best mortgage lenders for self-employed:
1. Look into Your DTI Ratio and Raise Your Credit Score.
Your debt-to-income (DTI) ratio is the amount of debt you have in relation to your income. All you need to do is divide the minimum monthly payments of your overall debt by your monthly gross income — and shoot for a DTI of 50% or less.
Check factors that can increase your credit score as much as you can. Your credit score is a number that tells lenders how reliable you are when you pay back loans or other debt. The higher your number, the better your chances are at getting a mortgage — and one with a low interest rate. Reduce as much debt as you can — credit card bills, student loans, etc.
2. Be Upfront.
You will be asked about your job and your income, whether it’s through filling out a form or when talking on the phone. There is no use in stretching the truth or avoiding the question. Be honest about being self-employed, because you will likely have to prove what you say with a bank statement or tax return. You may need to go through prequalification or pre-approval processes — prequalification offers less stringent checks on your income and other assets and pre-approval requires a more in-depth check on income and other documents.
3. Get Your Documents in Order.
Gather the right documents to streamline the process and demonstrate to your loan officer and your prospective real estate agent that you’re ready to get the process started.
4. Prove at Least 2 Years on the Job.
Your mortgage lender will look to see if you can prove steady income from the same job for at least 2 years. This can mean having your own company or client(s) that have consistently paid you during this time.
The 8 Best Mortgage Lenders for Self-Employed
Getting a mortgage without a traditional job and tax return is possible, and Benzinga rounded up a few lenders that can help.
1. Luxury Mortgage: Most Flexible
Luxury Mortgage makes it easy for all types of home buyers to get approved for a mortgage. Their flexible requirements can help you get financing, with no employment or income verification and no minimum DTI. Luxury Mortgage offers traditional loan terms, as well as more flexible home payment plans with their 40-year loan program.
It’s also easier to get approved if you’re self-employed. Tax returns are not required and you’ll only need one year of self-employment income history and a minimum credit score of 580. Luxury Mortgage can also help you get approved on assets alone, like your bank statements, stocks and bonds, or retirement accounts.
Luxury Mortgage is licensed to lend in Connecticut, Georgia, Illinois, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and Washington.
2. First National Bank: Get a Mortgage without Tax Returns
Tax returns show your after-tax income and this number is generally much lower than what you actually make. This can be problematic when you’re self-employed and want to buy a home. Being able to show other documents instead, such as a personal bank statement or business statement (only 12 months of information is required at this lender!) can make a big difference.
First National Bank does not ask for a tax return. Depending on other details you can provide, such as your credit score, interest rates will vary. These are customized, non-QM (non-qualified mortgage) loans. This does not mean they are necessarily risky, it just means other qualifying credentials are taken into account.
3. Better: Best for Low Rates
Better is a new type of mortgage lender that believes the traditional method of mortgage lending is outdated, a waste of time and not transparent. The company uses technology to help you easily see and understand the various rates and loans available and allows you to upload your documents, get an estimate and lock in rates online.
Better offers fixed-rate FHA loans as well as both fixed and adjustable rates for other loans they offer, such as 5-year, 7-year, 15-year, etc. Adjustable-rate mortgages are mortgages that have interest rates that can fluctuate based on the market. They are not locked in.
4. Eave: Best for Customer Service
Eave has worked to revitalize the mortgage lending industry and makes you have just as much access to a mortgage as those with a traditional brick and mortar job.
As long as you can prove that you are able to afford the home you want to buy, Eave makes the process of getting a mortgage entirely digitized and is a breeze if you’re comfortable using a computer. Eave has different types of loans and rates and its key feature is its 21-day closing guarantee, which allows you to compete with cash buyers.
5. Quicken Loans: Best Overall & Fastest Processing
Quicken Loans is one of the top-rated lenders by their customers. Quicken Loans many types of mortgages, including government-backed and adjustable-rate mortgages (ARMs).
Rates are consistent with the market and Quicken Loans helps you get approved even as a self-employed individual.
6. J.G.Wentworth: Best for Custom Options
J.G. Wentworth is rated as one of the top mortgage lenders by consumers who value customer service. It has countless options for mortgages, ranging from FHA to VA loans (for veterans and their families) and home improvement and adjustable-rate loans.
J.G. Wentworth explains the differences between each loan option and takes your lifestyle and finances into consideration. It offers some of the lowest rates, though you will have to get a quote first to understand what’s available.
7. Zillow: Best for Local Lender
Zillow is one of the top places to go on the web to search for a home. Everything you need is right there on Zillow, including an initial survey that actually asks whether you’re self-employed.
You can check the daily rate and compare it to other rates around the country. You’ll also get paired with a local lender which easier and is the best feature of this mortgage lender.
8. Guaranteed Rate: Best for Personalized Support
Guaranteed Rate will give you personalized attention and advice regarding your mortgage options. Loan types range from 30-year fixed-rate loans and 15-year fixed-rate loans to FHA, ARMs, VA home loans, etc.
You can even get pre-approved from a mobile device! Rates range from 3.3% to 3.6% depending on what you’re approved for.
Find the Best Lender for You
Many mortgage lenders rely on the traditional process for lending money to homebuyers — asking applicants for documents and numbers that self-employed you may not have. There are a lot of lenders that can offer you other ways to take out a mortgage loan. Follow these tips and do your research so you find the right lender that’s willing to work with your personal situation.
Frequently Asked Questions
1) Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!
2) Q: How much interest will I pay?
Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
3) Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first-time buyers. Check out the lenders that specialize in making the home buying experience a breeze.