Self-employment has many benefits – the ability to make your own schedule, the potential for more time off and better pay, the pleasure of doing what you love and getting paid for it, and more. But there are downsides to self-employment. The unfortunate fact for self-employed people is that it’s usually more difficult to buy a home than it is for buyers who have a steady paycheck from an employer. Read on, then, to discover 5 insider tips for buying a home in South Florida when you are self-employed.
1. Keep Accurate Records and Get Your Paperwork in Order
If you’re planning on buying a home in South Florida and you’re self-employed, be prepared for a lender to scrutinize your employment and income records closely and rigorously. And this means that you have to keep accurate records (and have all your documents readily available) so that you can prove to the lender that granting you a mortgage loan isn’t too great a risk.
“Keeping great records, tracking your expenses and income, and having an easy-to-follow profit and loss statement can pay dividends when it comes time to show a lender you’ll be able to take on a loan… If you don’t keep great records from the get-go, it might be tricky to have only a few months of detailed information to show to your lender and only rough estimates of prior years. It will most certainly be a headache to go back and get everything in order.”
And the sooner you start, the better. “If you want to buy a house in the future, organize your business records now. Some of the best practices for self-employed people looking to buy a house start years before shopping for a loan.” If you’re unsure where to begin or exactly what documents you’ll need, contact a South Florida agent at 954-278-9353 for some guidance.
2. Take Care of Your Credit
And, of course, you’ll need a good credit history and healthy credit score when buying a home in South Florida, sometimes better than those who aren’t self-employed are required to have. “[L]enders scrutinize a self-employed person’s credit history and ability to bring in revenue even more closely.” In addition, “you should expect to have a review at application, plus a ‘check-in’ right before you close to make sure you are still in business.”
So what does this mean in practical terms?
- Preferably a credit score in the 700s or a score in the 600s with an excellent history of steady, good income and timely payments
- Little existing debt and paid-down or paid-off credit cards
- A substantial down payment saved
Start paying down debt, improving the stability of your income, and improving your credit score.
3. Start Early
As we mentioned above, buying a home in South Florida when you are self-employed demands that you start the process early.
Industry pros recommend that even if you’re only at the thinking-about-buying-a-home stage, you should still “find a mortgage lender and discuss plans now… If you want to buy a home in a year or two, don’t wait a year or two to talk to a lender. Start a conversation now. Most of the time, lenders are happy to sit down and talk about the mortgage lending process. They can explain the do’s and don’ts. Most importantly, they can help set you up a game plan.”
Your goal should be to “form a relationship now and start following the lender’s advice.” That way you will already have done much of the preliminary work “like having the proper paperwork, a solid credit score, and a healthy down payment. Meanwhile, if you’ve stayed in touch, your lender will know you and understand your self-employment situation, and your odds of being approved should be a lot higher.”
4. Shop for the Best Mortgage and Rates
But don’t just settle for the first lender that seems likely to grant you a mortgage loan. Rather, you should shop lenders for the best terms and the best rates when buying a home in South Florida.
“A good starting point is to see what the current mortgage rates advertised by major financial institutions are. With this knowledge in your back pocket, shop around. You can either do this yourself by going to lenders individually (just beware, each time a lender pulls your credit, your credit score will get dinged). Or you can use a mortgage broker to shop around for you.”
Getting a mortgage may be more difficult when you’re self-employed, but you still need to seek out the one that works best for you.
5. Be Patient
Buying a home in South Florida when you are self-employed also requires (for the reasons laid out above) that you be patient and persistent.
“The biggest barrier to entry when you’re self-employed and looking to purchase a home is the fact that most lenders will want to see two years’ worth of tax returns that show self-employment income… That’s a problem. If you’ve only been self-employed for a year or six months, for example. You could have strong income and even earnings projections that show you only expect to make more in the future – but mortgage lenders base their underwriting process on established proof and history of earnings.”
As a self-employed borrower, you’ll encounter more rigorous lending requirements, so it will pay to be patient and persistent and do what the lender asks of you.
Use a Local Agent for Buying a Home in South Florida
Finally, because the challenges are greater for self-employed people, you’ll likely need an experienced South Florida real estate agent in your corner. A good agent will know exactly what you’re up against as a self-employed buyer and can help you navigate the process and overcome the challenges. So if you are self-employed and thinking of buying a home in South Florida, contact us today at 954-278-9353.