2 Ways A Self-Employed Or Commission Based Employee Can Improve Their Chances Of Getting A Home Loan

Posted on: 15 August 2017

Getting a home loan may seem straight-forward and simple to some people. It may seem that there are those who decide they want to buy a house and they go to the bank, get a loan, and it is a quick and easy process. However, for someone who is self-employed or who works based on commission, you may soon realize that getting a home loan is very difficult. There are restrictions put in place for people who are self-employed or commission based workers. Here are some things you can do to improve your chances of getting a home loan.

1. Don't Take Too Many Deductions

One of the biggest perks of being self-employed is that you can deduct a lot of your work expenses. This allows you to pay less on your taxes in some instances, which can offset the fact that many self-employed people can pay more in their business taxes. However, when you apply for a home loan you will see that the mortgage lenders don't' take your gross income, instead they take your adjusted gross income or your AGI. This is the amount of money you made after all the deductions. Thus, if you take a lot of deductions you will soon see that it looks like your income is a lot lower.

When you are applying for your loan, don't take too many deductions or it will make your income look lower. This may mean that you overpay on taxes the year you buy your house, but it will at least allow you to get approved for the home loan.

2. Buy Lower Than What You Can

The mortgage lenders see self-employed people as a bigger risk that someone who is employed with a company. This is because someone who works for a business gets a steady paycheck. So although you may make more money than the person who works for someone else, your income is not steady. Thus, you can improve your chances of getting a home loan if you ask for more than you can afford. If you think you could afford a $400,000 house, apply for a loan below that more like $350,000 or less. This will make the bank feel like you are less of s risk because you can easily make the payments. That way if the business isn't performing as you wanted you are operating on razor thin margins with your budget.

By doing these two things you can improve your chances of getting a home loan while self-employed or working as a commissions based employee.