Applying for a mortgage is a major milestone, with lots of emotion attached. Before applying for mortgage pre-approval, most people want to know what they can do to be the strongest possible applicant. If you are applying for a non-traditional mortgage as a self-employed person, like a bank statement loan, here are some things to keep in mind.
What is a non-traditional mortgage?
A non-traditional mortgage is different from typical mortgages primarily based on the income verification. Most loan application processes involve looking at the applicants tax returns to assess the financial strength of the the applicant, looking at the income and employment history.
If you are self-employed, work in the gig industry, or for some other reason do not have predictable income that is accurately reflected on a tax return, you may be looking for an alternative. Non-traditional mortgages can look at your bank statements and assets to determine eligibility instead.
Ready to apply for a non-traditional mortgage? Here are 5 tips to help you prepare.
What can I do to prepare for my non-traditional mortgage application?
Before applying for a bank statement loan or another non-traditional mortgage, consider these 5 tips.
1. Boost your credit score
Before applying for any loan, it is in your best interest to take a look at your credit score and make sure it’s in good shape. Any score above 620 will likely work for you, but higher scores will result in better rates and terms.
If you need to boost your credit score, there are three things you can do right away to make a big impact:
- Set up automatic payments on any debt. On time payments make a big difference in your credit score, so eliminate the possibility of forgetting to pay a bill on time by setting up automatic payments and watch your credit score rise in response.
- Increase your credit limits. Contact your credit card companies to request an increased credit limit. This is not so you can carry a higher balance, but because it will immediately improve your credit utilization rate. This it the percentage of your credit limit that is currently being used, and the lower it is, the higher your credit score.
- Dispute any errors on your credit report. If you are concerned that your score is lower than it should be because of an error, take the time to file a dispute and have the error removed from your credit history.
2. Pay attention to your DTI
Your DTI (debt-to-income ratio) reflects how much of your monthly income is going toward debt payments. This is a number your loan officer and the loan underwriters will look at to determine how much more debt you can responsibly take on.
Take care of your DTI by avoiding taking on any additional debts and paying down balances with high monthly payments.
3. Gather the relevant documents
Your application process for a non-traditional mortgage might require more paperwork than a typical mortgage application would. Gather all of the documentation you can to show your financial position, including bank statements and information about your business if you are self-employed.
4. Acquire client subscriptions, contracts, or letters of intent
If you are confident to move forward with a home purchase based on subscription rates, contracts for future work, or other indications that your income will remain steady or grow in the future, gather evidence of all of these things to provide to your loan officer.
5. Talk with loan officer
The best way to get your questions answered and prepare to apply for a non-traditional mortgage is to talk with a loan officer. Schedule a time to talk with one of our loan officers today so you can begin to prepare for the exciting home buying process.