How to Get an FHA Loan When Self-Employed
- 1). Get your most recent credit report by going online to AnnualCreditReport.com, the official site to obtain your free all-in-one credit report from the three major credit bureaus. Before applying for a loan, make sure you know your credit history and verify that your report is error-free. Correcting your credit report and repairing your credit might take extra time, but your efforts will be rewarded with an improved credit score, which will better help you qualify for a loan.
- 2). Gather copies of the documents that substantiate your income, such as your complete personal and business tax returns for the past three years, copies of the last two years' personal and business bank statements and two or three years' business profit-and-loss statements from your accountant. If you are a sole proprietor and do not have accountant-prepared financial statements, prepare your own profit-and-loss forms from your bank statements with easy-to-follow financial programs such as Quicken or QuickBooks.
- 3). Do a quick calculation of your loan-to-value and debt-to-income ratios before submitting an official application. If you don't have enough cash on hand or income to cover the debt, you probably won't qualify. FHA lenders will typically loan up to 98 percent of the current appraised value of your home, but the larger the down payment, the more lenient a lender might be. Your total debt (including the new mortgage payment) should not exceed 45 percent of your gross income, so the more available verified income you have, the better your chances are to qualify for a loan.
- 4). Pre-qualify at your local bank, where you are known. First, let the lender know you are self-employed. Your lender might already be an FHA-approved lender or know where to refer you for an FHA loan. Pre-qualification will entail submitting a completed application, including documentation of income verification, credit history and pertinent information and documentation about the proposed property (appraisal, survey, tax records, deed and title policy).
Source...