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YOUR DREAM HOME



Home-Buyer Be Prepared

 

Here are five things self-employed women should know as they finance their dream homes. 

By Claire Basarich

Due to the recent subprime loan crisis brought on by lenders who provided too many loans to people with poor credit, qualifying for a mortgage has become trickier. The changes in the market may appear especially obstructive to self-employed individuals, who have a more difficult time documenting income, but it's not impossible to qualify for a low-rate mortgage even under today's conditions, according to Brad Stroh, co-CEO and co-founder of Bills.com, a free online consumer portal. "It's important to understand the mortgage and lending world has changed," Stroh says. But "people with great credit and plenty of equity will have a good chance of getting a great loan."

Despite the dramatic impact of the crisis, Stroh remains optimistic. "Reaching the American dream just might require a little more preparation than it has during the past decade – and a larger down payment." He lists five key things all self-employed people should know when applying for a mortgage – particularly women applying on their own:

1. Credit scores are more important than they used to be. Lenders will require a score of at least 660 to 680. A score below 680 can result in a higher interest rate, a drop into an Alt-A or subprime market, or a denial of credit. Request a copy of your credit report at annualcreditreport.com and check if there are any errors. If so, write the credit reporting bureau and ask for a correction. This is particularly important for recently divorced or self-employed women, as "bad credit marks from a spouse or business can haunt your future." Stroh encourages clean financial separation, from either your ex-spouse or your small business. Make sure joint accounts are regulated. Also, for small business owners, make sure personal credit is not affected by business finances.

2. Boost your credit score by: paying every bill on time; paying down credit card debt; occasionally using the oldest credit cards you hold and paying them off immediately; and asking for a break (if you've only missed one deadline, ask the company to erase the late payment).

3. Today, lenders may require a down payment of 10 to 20 percent of the home purchase price. Budget well to be sure you can afford the interest and can put down at least 20 percent, which will eliminate the need for mortgage insurance. "You need to get into a loan today that you can pay for tomorrow," Stroh says.

4. The debt ratio, or percentage of debt to income, affects the total loan amount for which a buyer qualifies. Be sure you have a total debt ratio of 38 percent or less, including all debt, such as mortgage, auto, personal loans and student loans.

5. "Keep good, clean records of bank accounts, tax returns, paychecks and 1099 forms," Stroh advises. "Though five years ago a self-employed writer could get a loan with just a stated income, that particular market has died. Now, self-employed individuals need to be able to prove their income."

Even so, "in most markets, it's still a buyer's market," Stroh says. With a little careful planning and organization, single self-employed women can qualify for the mortgages they want.