A St. Louis Mortgage Checklist for the Self-Employed
Being self-employed can be great. You get to be your own boss, and you can set your own hours. When it comes time to buying a St. Louis house though, being self-employed can be a bit of a problem. Self-employed people often have lower credit scores which can impact your mortgage application, but a low credit score shouldn’t completely deter you from buying a St. Louis home.
Here is how to get a mortgage is you’re self-employed in St. Louis.
What decides a loan?
In order to get a loan, your lender will look at several different factors. These factors will all weigh in on your ability to pay back a loan, and they should help the lender decide whether or not to give you the loan. Some factors carry more weight than others.
These eight factors are usually the biggest in determining whether or not you’ll get a mortgage:
- Credit Score: A score of 740 or better is best for loans. They get the best rates. Anything between 700 and 740 is also usually acceptable for any loan program as well as great rates, though the rate will be a bit higher. With a score below 700, you may lose out on several loan program opportunities, and you’ll have higher interest rates.
- Loan Product: Fixed period loans that last for 30 years usually come with the highest rates.
- Property Types: Lenders see St. Louis single-family homes as the least risky of all properties. Condos are slightly riskier because of the homeowner’s association. Multi-unit properties are also risky, unless the buyer is planning to live in one of the units while the others are rented out.
- Loan Amounts: The higher your loan is, the less risky it is. Anything below $417,000 is sold to Fannie Mae or Freddie Mac so your lender has to comply with their standards.
- Occupancy: Most lenders see owner-occupied properties as the least risky investments. If you’re living there, you’re more likely to take care of your property’s mortgage. For this reason, second home loans can be a bit more riskier for lenders.
- Loan-to-Value Ratio: You need to have a large down payment to make this ratio low.
- Debt-to-Income Ratio: This number tells the lender of your housing costs per month as well as any other monthly debt in relation to your income. The highest you can go with this 43 percent. The more money you make, the more secure lenders will feel lending you the money. They’ll usually look at your tax returns from the last two years as well as year-to-date incomes and expenses.
- Reserves After Closing: This number will take into account your liquid assets and 60 percent of your total retirement accounts. You need about two to six months worth of mortgage payments in your bank account after all the closing fees and other expenses are paid for.
Exceptions can be made in some of these areas, but it mainly depends on your lender and your situation. Before applying for a loan, talk with your lender and monitor your credit score. You can improve your credit score over six months or even a year, so if you’re not ready to buy a house, look for ways to improve your score in the meantime.