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Being self-employed can be a freeing lifestyle in which you can make your own schedule, take charge of your own projects, and feel the passion in your work each day.

The entrepreneurial lifestyle definitely has its pros, but it also comes with a lot of hard work and different challenges. As a self-employed person, you may see getting a mortgage as a challenge because of traditional lending guidelines and regulations. While the loan process can be a bit different, it should go smoothly as long as you’re prepared! Here are a few things to prepare for if you’re getting a mortgage while self-employed:

Paperwork … and a lot of it

It shouldn’t be a surprise that paperwork is necessary when you get a mortgage, but as a self-employed borrower, you’ll need even more than a regularly-employed borrower. You should be able to show the income that comes from your business on a regular basis. When a lender evaluates your financial situation, it is important that they see consistency in the amount of income that comes from your business. If you can show both consistency and growth in income for a year and over, you should be in good shape!

Keeping business and personal assets separate

It can be challenging to keep your business assets separate from your personal assets – especially when you’re just starting out – but it is very important to have clear separation when it comes to qualifying for your mortgage. Any purchases for your business should be made on a business credit card. For example: if you make a purchase for your business on your personal credit card, the debt from that purchase will count against you when you go to get a mortgage. However if you make business purchases on a business card, the debt from those purchase will not count against you and your personal assets.

Only some of your deductions will count toward your income

One of the perks of being an entrepreneur, is the ability to write off expenses as they relate to your business. While mileage, supplies, and business lunches can all be deducted from your taxes, the repates from those deductions don’t generally count as part of your income.

Although many self-employed people consider the tax rebates to be part of their annual income, a lender will usually not consider all of it. As we said before, lenders are looking for consistent income from your business when they evaluate your financial picture. Tax deductions are seen as inconsistent, and likely will not be considered.

These may seem like obstacles, but now that you are aware of the challenges of getting a mortgage while self-employed, here are a few things that you can work to raise your odds of qualifying.

Be Transparent with all of your paperwork.

Offer up as much paperwork related to your business as the lender needs. This could include balance sheets, tax documents, year-end summaries, and other specific documents. The more that you are able to substantiate your income, the better shape you’ll be in.

Keep your credit score high and your debts low

If your income is seen by lenders as a risk-factor, you can strengthen some of the other factors that they will be evaluating. If you have a great credit score, and only a little bit of debt to your name, you may still be able to qualify for a mortgage.

Consider adding a co-borrower

Adding a co-borrower to your loan is another way to strengthen your chances of getting approved. A co-borrower is someone who will be able to help manage the monthly payments of your loan if you are unable to do so. If your co-borrower has stable monthly income in addition to a strong credit score and low debt, they may help your application become more likely to get approved.

Make a large down payment

Another step that you can take to increase your chances of getting approved is to borrow less, and own more equity in your new property. If you have the ability to make a larger down payment, you will not have to borrow as much and your situation could be seen as less risky by a lender.

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