How To Buy A Home If You’re Self Employed (or Single!)

One thing I ask all my new clients about is their personal goals. We talk about where they’d like to be in the next one to five years, then start planning for their future TODAY. For a lot of us, “big goals” includes owning a home. But to buy a home if you are self employed or single can feel like a huge challenge.

Is a being a homeowner on your personal goals list? If so, you’re not alone! But the house-buying process isn’t something you decide to do today and finish by tomorrow. It takes time, planning, and patience. So if a home of your own is something you want in the next five years, NOW is the time to get the ball rolling, no matter what your status or your financial situation might be!

And if you want to buy a home and you’re self employed or single, it’s even more important to start preparing now.

First, let’s hit a few housekeeping (so to speak) points that apply to everyone looking to make this life-changing purchase.

The loan application process is the same for everyone. It doesn’t matter whether you’re a W2 employee, self-employed, married or single.

Still, there are a few salient details that entrepreneurs and solo-flyers need to know. They’re simple things to help improve your chances of getting a YES on the loan application. Here’s why…

When it comes to mortgages, the system favors those who play it “safe.” It’s very slanted toward people with W2 jobs and two incomes (i.e. employees with spouses).  Not exactly fair, is it?

(It’s kind of mind-blowing, honestly. As entrepreneurs, we make things happen. We make money out of nothing, we get creative when we have to. Seems crazy that this qualifies as riskier than an employee! But I digress…)

But all the entrepreneurs, self employed people, and all the single ladies (and gentlemen) don’t need to feel (ahem!) “singled” out.

After all, not all of us were created to be so traditional. So if you’re a risk-taker like I am, it doesn’t mean that your dream home is out of reach. It just requires a little bit of creative thinking. Luckily, that’s what we entrepreneurs do best!

Now, let’s talk about the timing of it all…

Often, my clients say they’d like to eventually own property. But “eventually” means many things to many people. There are three main phases of “eventually” when it comes to home-buying. We’ll talk about them all today!

I’ve gone through the home ownership process a couple of times, both as a married and a single person. I was an entrepreneur both times. I’ve spoken to a wide variety of brokers, real estate agents, and banks, and in several parts of the country.

Through my experiences, I’ve learned a lot about navigating the process. I’ve mapped out a simple format that’ll help you get through it with less stress, no matter what your status!

Don’t let your circumstances keep you from your home-owning dreams. Simply decide where you are in the process. Then follow the steps in each category, and keep that dream home vision alive!

P.S. If you get overwhelmed or discouraged, you’re not alone. But I’ve done a lot of the “heavy lifting” for you, and I’m here to support you!

So let’s break down the three phases of home ownership, one at a time, and with extra tips if you want to buy a house and are self employed or single.

Phase One: “I’d like to buy a home…someday”. Even if home ownership sounds like a far-off dream, give that dream some attention today. Don’t wait until you’re mentally, emotionally, or financially “ready” to take the first step. Start today so that when the time comes, you’ll hit the ground running.

But never fear, the first steps are baby ones! I’ve created a short checklist to complete. That way, when you’re ready to click that mortgage loan pre-approval link, it’ll be smooth sailing.

The “Someday” Checklist (Especially For Entrepreneurs and Self Employed People):

• Put yourself on a payroll, not an owner’s draw. This means pay yourself as an employee of your own business. Do this rather than an “owner’s draw,” where you as the business owner take your business funds for personal use.

• Make sure your business is registered and licensed in your state

• Keep separate business and personal accounts (no mixing funds)

• Maintain good records and limit tax deductions to show more profit. Try eliminate break-even books. Raise prices and limit re-investments into your business, if you need to.

• Start a savings account for your future. Whether or not you use this money for a home is up to you. But most mortgage loans require 3-20% down. You’ll likely have some repairs and upfront costs, too. Extra cash on hand will decrease the stress on your bank account when the time comes. 

• Consider putting more money into your retirement accounts. Having assets in your retirement accounts is an excellent backup option. You can draw from them in a case of a first-time home buyer without penalty. If you decide not to buy a home, congrats! You have money for your retirement. It’s a win win!

• Consider moving your business checking to a local credit union. They often have better interest rates, more stability, and the small-town customer service that big banks can’t provide.

Start here, and get your home-owning ducks in a row one step at a time. Even if your buying plans change, each of these items steps up your overall money game.

When it comes to home buying, “2” is a magic number. And no, it has nothing to do with marital status! Here’s what I mean by that…

When you apply for a loan, banks will average your two-year earning history. That means any income source you’ve had for less than two years won’t count. That’s everything from commissions to bonuses, W2 income to self-employment income. If it’s not ongoing and steady for two years, the bank won’t care.

You’ll need two years of tax returns with income from a steady source. As an entrepreneur or self employed person, this means you’ll need two years of solid financial data from your business. If you’re an employee, that means two years of W2s.

If you’ve switched recently from a W2 employee to a self-employed entrepreneur, the bank won’t count the income from your former job.

The key is building income consistency before you apply for a loan. That will get you that magical two years worth of financial data that will improve your odds of getting a YES.

Phase Two: “I’m Ready To Buy A Home!” This is the exciting part, and you have an exhilarating journey ahead of you! Now is the time to have your ducks in a row. It’s the best way to up your chances of getting a mortgage that is right for you.

Now, the commercials make it look like you can get an immediate mortgage answer from a smartphone app. Not quite the case.

That’s the pre-approval process they’re talking about. The one where you fill out an online application, an underwriter reviews it, and you get a quick answer.

The real fun starts with you contact the bank and ask about getting a loan for your dream home. Once you sit down with the bank for a real conversation, the process moves quickly.

But let’s start with the mortgage pre-approval loan application. Here’s what you’ll need to have available and in order!

The Mortgage Loan Pre-approval Checklist:

• Pull your credit report. Make sure that you have a desirable score (580+). If you don’t, look for ways to boost it before you apply. (No idea how to up your credit score? I show you 6 simple ways HERE!)

• Pay off recurring debt (like credit cards!) Pay off those credit cards as soon as you can! It’s important to  show you’re not hanging onto any useless debt.

• Know your debt-to-income ratio (DTI). This, of course, refers to how much debt you carry versus how much income you make. To find your DTI ratio, simply divide your debt  by your income. Keep in mind that the banks consider your income an average of your NET income for the last two years. Use THAT number against your minimum monthly debt payments to calculate your DTI.

• Spend less 90 days prior. The banks will want to see your bank statements and asset values for the past two months (see that “two” trend again?). Limit your excess spending 60 days prior to your application to plump your cash for the process.

Phase Three: “I’m taking the steps toward my dream home NOW.” So you’ve been pre-approved online. A bank representative reaches out for a serious conversation. Here’s what you need to know at this point in the game.

The Final Steps To Mortgage Approval Checklist:

• You have 14 days after an initial application with one lender to apply with other lenders before it affects your hard inquiry count. This is especially helpful since it’s suggested to get two to three quotes before you accept one. (After all,  a mortgage is also a 30-year commitment–you’ll want to make the right choice!)

• Alert your accountant. Let your accountant know that you’ve applied for a mortgage. Accountants often have good advice for the process, and they can also write letters on your behalf.

• Ask A LOT of questions and ask for advice during the process. Don’t be afraid to ask as many questions as you can, and learn the process. Even if you get denied on the first try, you’ll still learn a lot. Take advantage of the time you have, and ask while the experts are available.

• Adjust your budget & start a new savings account. Be sure to update your budget, not only to reflect your new mortgage, taxes, etc. but also to include a “home maintenance savings amount”. We all know that owning a home takes time, energy, and money. But most of us don’t save enough in case of an emergency. A basic rule of thumb is to save 1% of your homes value or mortgage per year. So if your home is valued or mortgaged at 250k, plan to put aside $208/mo or $2,500 per year. Adjust if you are planning additional home renovations. This is the account you will dip into when your water heater/furnace/windows/roof, needs updating.

There you have it! My best tips to buy a home, especially if you’re self employed or single. With any luck, I’ve taken some of the mystery out of the process. My goal is to help you understand the process, know that it takes time, and be prepared. 

Home-buying can be an exciting adventure, so don’t let fear or worry get in your way! Regardless of your circumstances, you can make it happen, one step at a time. Start TODAY!

Have any questions or comments about how to buy a home if you’re self employed or single? Have you ever had this experience yourself and do you have additional tips to share? Id love to hear them! Leave a comment below…

Until Next Time,

Love, light, and MONEY, Honey…

Kaylee