Getting A Loan When You’re Self-Employed

If you are self-employed, then you may one day come across needing some sort of a loan for you and/or your family.

Most like to think that they won’t ever have a problem getting approved for a loan, but if you are self-employed then it may be a little bit tougher than if you worked for someone else.

There are a few problems that you may run into when trying to get a loan (such as a mortgage):

  • Unstable income. Mortgage companies tend to think that self-employment income is more unstable than when you work for someone else, and they don’t like unstable income. You will have to prove that your income is stable.
  • Mortgage companies want at least two years of tax returns. If your last year was lower than the year before, they will take the lower number. If last year’s number was higher than the year before, than they average the two.
  • Mortgage companies want a paper trail. If you have any large deposits (different mortgage companies use a different dollar limit), then they will probably ask for paper proof of where the money came from.


Getting A Loan When You're Self-EmployedWhat income number does the loan company look at?

Do you usually deduct a lot of expenses from your business?

Well guess what?

This can actually affect you negatively when you are looking to apply for a loan. Loan companies look at net income of a self-employed person, and that means that is the income number AFTER you deduct all of those expenses.

If you are unsure what you should do, you should try to talk to an accountant and see what would be best for you. If you deduct everything that you can and your net income is $30,000, you may not be able to get the house that you want to buy if you plan on getting a mortgage.

Do you want that home or to pay less in taxes? That can be a very hard decision.

Your credit score is important. 

If you have a low credit score, then a mortgage company may not approve you. Since you are self-employed, a low or average credit score can count against you as well.

If you plan on buying a home within the next few years, then you should try doing as much as you can now to check your credit score, fix any mistakes on your credit report, and improve your credit score now. It doesn’t have to be hard to do this.

Choosing a company to go with.

What company you choose can play a role as well. The company you choose should be a careful process since it can decide the quality of your loan and how long it will take to obtain a loan of your liking.

Were you able to get a loan easily if you are self-employed? What happened?


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