Refinancing for the Self-employed

If you’re your own boss, you’re fully cognizant of the benefits – no one telling you what to do or when to do it, no time card to punch, to say nothing of working in your pajamas. That’s the life! But if you want to refinance your mortgage, being self-employed has a whole set of disadvantages that a nine-to-fiver doesn’t experience.

Don’t give up—the same hard work and discipline that have made you a successful businessperson can help you navigate the mortgage refinance waters. Here are five tips that will help:

1.  The paper chase.  The key to a successful mortgage refinance is in your documentation. Banks will require two years of tax returns with your application. If you’re thinking about refinancing in a year or two, you may want to re-think how you handle deductions. The more income you show, the more desirable a refinance candidate you’ll be, so if an expense is borderline between business and personal, you may want to leave it out of your business life.

2.  Give credit where it’s due.  If you’re self-employed, you’ll be held to a higher standard for credit scores.  But if you have a good history, pay your bills on time, and have a FICO score over 700, you’ll be seen as desirable. Obtain a copy of your credit report, and make sure that there are no errors. If there are, have them corrected immediately. If your credit is less than stellar, you may need to wait for that refinance until you begin to show on paper that you can be counted on to pay borrowed money back on time.

3.  Money in your pocket. If a bank is considering lending you money, they’ll be very happy to see hefty reserve funds attached to your name. They’ll be reassured that if you hit some tough income patches, you have resources to back it up. If you haven’t been socking away money into a savings account, there’s no time like the present to begin.

4.  Be flexible. If your self-employed income is too low, you may not qualify for the lowest rates available. However, you may qualify for a slightly higher rate. If interest rates are low, an extra quarter or half point should not make that much difference on a monthly basis, especially if it’s the difference between getting the loan or not.

5.  Going for broker.  Since it can be challenging for the self-employed person to find a mortgage refinance, consider enlisting the aid of an experienced mortgage broker.  An individual bank has limited options, but a mortgage broker works with a vast network of lenders, and can provide you with more options.

Applying for a mortgage refinance can be challenging if you’re self-employed. But if know what the banks are looking for, you’ll be in a much better position to qualify. Ultimately, banks don’t care if you work in your PJs, as long as you send in that monthly mortgage payment on time.