Some lenders consider self-employed persons a higher risk,Here are some tips :
Work on having a higher credit score.For example a score above 740 can work to your advantage.
Adjust your income accordingly.Self employed people tend to take advantage of tax deductions that lower their taxable income.The challenge is that lenders will use taxable income to determine how much mortgage one qualifies for.
Consider a joint mortgage if you are married and your partner draws a regular pay-check on a W-2.Your partner in this case can apply as the primary applicant,with you as secondary applicant.
4.Make a bigger down payment.This convinces your lender that you are less likely to default.
1:- pay off your debts
2:- get your credit report in advance.
3:- adjust your income accordingly.
4:- make a bigger down payment and meet with your potential leaders face to face.
Another good tip is to have a lot of reserves (liquid savings). If you are using a conventional loan to finance the property your loan is being underwritten by a computer first and then by a traditional underwriter that reviews the computer decision. The more money you have in savings the more the computer is going to like you because it shows that first and foremost if anything bad happens (nothing bad ever happens in real estate though :bobble) you have money to fall back on and get through the tough spots, and secondly it shows you have a propensity to save money which is a good thing.
I have seen a lot of reserves overcome a high DTI and low credit score many times.
From experience it pays to also first work with smaller banks/credit unions, to help you build a relationship and get time with the “underwriter” per se.
Also who you bank with will also take into account your banking history and that may work in your favor as to assessing you as a “lower-risk”
Yes, paying off your (credit card) debts is NOT the way to increase your borrowing power. In fact, it will reduce your borrower power.
This is especially true with credit card debt. If the cards are empty, the bank will assume you’ll load them up, and use that potential, unsecured, borrowing capacity against you. Maintain a balance on your cards.
That said, if you’ve got a lot of cards, even with small balances, you’re likely to have a hard time borrowing. It’s the potential borrowing ability, coupled with the actual borrowing, along with the dollar amounts you’ve borrowed, and the income “securing” that debt, that influences how much, or if, you can borrow money.
It’s wise to talk to your lender(s) well before you want to borrow, and pick their brain regarding what they want to see in an application. This is something any investor wants to do as he moves up the financial/borrowing ladder.
Mortgage brokers are very good resources for this feedback. They work with many lenders with varying requirements; know better what a given lender will want; and will give you guidance on how to qualify for a specific loan type (if not the property type). Different properties will qualify for different types of loans, once you move beyond residential mortgages (1-4 units).
Meantime, give yourself lots of lead time so that you’re prepared when it’s time to apply for a loan …so that you don’t set yourself up for failure when it counts.