Self-Employed and Buying a Home? Here’s What to Know for 2021

If you’re self-employed and buying a home, there are mortgage loan options for you – but the COVID-19 pandemic has brought about quite a few changes in the lending industry. Here are a few things you need to know for 2021 and how being self-employed will change the way you apply for a mortgate.

Self-Employed and Buying a Home in Knoxville? Here’s What to Know for 2021

Being self-employed definitely has its perks, but sometimes lenders are a little tougher on those of us who work for ourselves. But freelancing and gig work has become incredibly more common over the past few years – in fact, about 35 percent of the country’s workforce falls into this category.

So what’s changed this year?

For starters, lenders are requiring a lot more documentation. Lenders are being a lot more cautious before letting self-employed people borrow, particularly because the economy is so shaky and not everyone is going to be able to repay a loan. That means you’ll need more than last year’s tax returns to qualify for a mortgage to buy a home in Knoxville.

What Documents Do Self-Employed People Need to Buy a Home in Knoxville?

Some of the documents you’ll need – and remember, your lender will most likely give you a customized list – to borrow to buy a home in Knoxville include:

Last year’s tax returns

A year-to-date profit and loss statement

Business bank statements to support your profit and loss statement

Is it Harder to Get a Loan if You’re Self-Employed?

Although it’s not harder to get approved, filling out the application and digging up backup documentation can be a little tougher than it’s been in the past. The real clincher is that profit and loss statement, which takes time to compile (and costs money if you’re hiring someone to do it for you). Your accountant may be able to create one for you – and your REALTOR® can help you find someone to prepare it if you don’t have an accountant. You can also learn more about these types of statements here.

Can You Improve Your Chances of Approval?

There are always things you can do to improve your chances of approval when you’re applying for a loan. Improving your credit score by paying down debt, which lowers your debt-to-income ratio, is a huge factor in whether a lender will approve you for a mortgage loan.