There have always been challenges that come with being self-employed. Is it one of them to find a loan for self-employed people? Is it? Well, self-employed people who need loans suffer more from not having enough information than from not having enough options. People who are self-employed often say that there isn't enough information about loans for self-employed people. Lenders will always give you options because that's how they make money. The most important thing is still making the right decision.
You are considered self-employed if you run a business or profession as the owner or a partner, if you work as an independent contractor or consultant, or if you have jobs that come and go. Self-employed loans have traditionally been hard to get and had high interest rates. Self-employed loans, on the other hand, have become more flexible as more and more people choose to work for themselves.
If you are self-employed and have accounts that are at least three years old and a good credit history, it will be easy to get a loan. You will be on the same level as anyone else who works for a salary. Well, if you don't meet any of the above criteria, or if you work for yourself, you can still get a loan.
One thing that almost always goes against people who work for themselves is that they don't file their taxes on time. The income of self-employed people is understated in the accounts. This is usually not a good thing, especially when you are trying to get a loan because it limits how much you can borrow as a self-employed person.
Self-certification mortgages are a way for people who don't have certain documents to get a mortgage loan. People who work for themselves certify themselves without any proof that is accepted. Some of these loans for people who work for themselves have strict terms and high interest rates. Look for interest rates that fit your budget, because they do exist.
The down payment for self-employed loans will be between 20% and 40%. When it comes to loans for self-employed people, the down payment reduces the risk for the lender. People who work for themselves usually don't have a steady income, and statistics don't show a lot of hope for business success. One out of every five people who try to go from having a job to being their own boss fail. This makes loans to people who work for themselves risky. If a self-employed person can make a big down payment, the loan lender won't care about anything else that might be bad about their application.
People who work for themselves are usually asked to show their personal and business tax returns from the past two to three years. This depends on whether the person is a partner or a proprietor. If you are a partner, you will need the tax statements of the company, three years of general T1 tax returns, and three years of personal notices of assessments. Some lenders will give you a loan if your accountant writes a simple letter.
People who work for themselves often take out "low doc" or "no doc" loans. "Low doc" self-employed loans will need very few documents to prove that you are who you say you are. Even with "no-doc" loans, a self-employed person wouldn't have to prove their assets or documents. Interest rates are what these loans for self-employed people cost. Self-employed people can also get a HELOC, or home equity line of credit. The price of a HELOC is a spread over the base interest rate.
Most of the time, a self-employed person's loan options are based on how good their credit is. This will also change the loan-to-value ratio, which for self-employed loans is between 70% and 90%. But people who are self-employed but have bad credit also have a choice. There are lenders who will give bad credit loans to self-employed people. Keep an eye on interest rates.
As you can see, a self-employed person who wants a loan has a lot of options. Since there are so many different kinds of self-employed loans, it is best to look for as many options as possible when applying for one. Some people find self-employed loans through brokers instead of directly from lenders. But lenders can look for deals online to find the best one. With a self-employed loan, you won't be punished for choosing a certain kind of freedom, like being able to choose your own hours.
