Steps To Qualify For a Mortgage When Self-Employed

7134101805_f32bb89296_zI’m the type of person who likes to plan things way in advance. So, it only makes sense that I am currently thinking about our mortgage for our next home.

As a refresher, we are thinking about buying our next home within the next two years. We don’t think we want to stay in St. Louis, and we are looking at moving possibly to Colorado or Florida. Yes, yes, I know these two states are completely different, but they both have some great advantages of living there.

Getting approved for a mortgage these days is a little bit harder in the past. I remember when we bought our first home, the process was a breeze. Our loan officer even told us that we were the easiest loan he’s ever done.. I have been told that I will not be that lucky this time around because rules are more strict and because we are now self-employed.

You will want a good credit score.

A good credit score is needed whether you are self-employed or not these days, but you will need something a little better if you are self-employed. You will most likely want a credit score above 740 in order to qualify for a loan from your bank.

We are wanting to have our credit score be as near perfect as we possibly can get it. Currently, we are both in the 760 range. It would be higher but we’ve been travel hacking, which has slightly lowered our credit score.

You will want a large down payment.

For the home we live in right now, we paid a very small down payment towards it. Because of it, we also pay PMI, and that’s something we don’t want to do again.

Also, most mortgage companies will want a self-employed person to put down more than 20% on a home because they want to know you are invested in it.

I have heard of some banks asking for between 25% to 30% as the down payment. That is a lot of money that we will need to save before we even start looking for a home!

Lower debt to income ratio.

If you are buying a home, then you will need to work on your debt to income ratio, especially if you are self-employed.

Your loan officer will most likely want to see something below 40% so that you are not overwhelmed with a loan. We will be much lower than that thankfully, so this is not an area we need to worry about.

You will want an increased income.

Most self-employed people deduct routine business expenses from their taxes in order to decrease the amount they owe in taxes. However, this may count against you when applying for a mortgage because your loan officer is going to look at your bottom line to determine how much of a home loan you can afford.

The bank will usually average your last two years. However, if you made less money in the most recent year than the year before, they might only take that number.

Work history.

If you are self-employed person, most banks will ask that you have at least two years of self-employment experience. If you have less, then they may turn you away completely or give you a higher interest rate.

How was the mortgage process the last time you bought a home? Did anything go wrong?

If you are self-employed, please, especially, share your experience! 

 

Image via Flickr by Billy Metcalf Photography

5 Tips To Manage Your Side Hustle

5 Tips To Manage Your Side HustleJust one year ago, I had several side hustles. I was working 100 hours a week. 50 hours each week were spent at my day job and 50 hours each week were spent on my side hustles.

I continued this for a few years, and my side hustles are now my full-time freelancing income. I was constantly asked how I was able to manage it all, and for as long as I did.

Well, I am here today to help all of you manage your side hustles along with your day job. My five tips are below.

1. How determined are you?

It is possible to work both a day job and a side hustle. It just depends on how determined you are. If you really have a good reason to have a side hustle, then you will find a way to make it work if it is meaningful to you.

This is important because managing a side hustle and a day job can be a lot of work. If you are not determined to manage both, then I personally think it would be very difficult to manage it all both mentally and physically.

2. Carefully schedule your time.

Managing both a side hustle and a day job means that you will have to schedule your time as carefully as you can. Every minute and every hour counts, so you will want to be careful with your time.

For me, I scheduled my side job into any time slot I could find. I would wake up early in the morning and I would freelance for around an hour. I would then go to work and use my lunch hour for my side hustle as well. Then, I would come home and side hustle some more. I had a strict schedule and if I didn’t stick to it then where I am right now probably wouldn’t have been possible.

3. Use time off strategically.

I also used my time off strategically. I would take vacation days off so I could work on my side hustles. I also used holidays and weekends to work on my side hustle as well. For a few years I didn’t have an “off day” where I wasn’t working at least a little bit.

Every little bit counted if it meant I could grow my business!

4. Automate as much as you can.

One thing I have done that has really helped me out is automating as much work as I can. I write several articles each week, and I always try to write as much as I can ahead of time and then I schedule them to go live later.

The same goes for tweets and statuses on social media networks. It saves me a ton of time just in case I can’t get to it later.

5. Still find time to enjoy life.

Even though it can be hard to manage a side hustle and a day job, it is possible. You also still need to find time to enjoy life, no matter how hard it may be. I didn’t have a ton of free time when I was working 100 hours a week, but I still made sure to see my friends at least once or twice a week.

Even just a quick lunch can be fun and relaxing.

Do you have a side hustle? How do you manage it all?

 

 

Increased Costs Since Switching To Self-Employment

Increased Costs Since Switching To Self-EmploymentSelf-employment has been pretty great these past 9 months.

I’m having fun, I love my flexible schedule, being location independent is absolutely amazing, I love the work I’m doing, and everything overall is good right now.

One thing many people don’t think about is that even though you work from home, your expenses might actually increase. Working from home and self-employment does not automatically mean that you will be saving hoards of money.

Before I get to the part about how certain things have become more expensive I do want to say that for the most part my expenses have decreased in many areas:

  • Clothing. I’m not sure if this is good or bad (does this mean I’ve let myself go? haha), but I definitely spend a lot less money on clothing than I used to. I think it helps a lot that I don’t need much when it comes to professional clothing anymore and that’s where a lot of my clothing spending used to go.
  • Transportation. I spend a lot less in transportation than I used to. I don’t have to drive to work 5 days a week anymore.
  • Food. I don’t spend anywhere near the amount I used to spend on food. Now, we mainly eat at home and it’s cheaper and much tastier.

 

Below are different areas in which my expenses have increased:

Electricity, Gas, and water.

During this past winter, our gas bill was a little bit higher. The same goes for during the summer months so far.

This is because I am home all the time now and I want my home to stay at a comfortable temperature all day long pretty much, and also because I am using more electricity (charging electronics, lights, etc.) than we were when no one was home during the day.

We are also using more water as well. But that could also be attributed to the fact that my sister lives with us and has been at home more.

The electric, gas, and water bills haven’t significantly increased, but I believe I am spending around $30 to $50 more each month in these areas altogether.

Taxes.

I am paying much more in taxes now, and I think it hurts a little more because they aren’t automatically taken out of my paychecks before I can actually see it in an account.

I also have to pay self-employment tax now.

Health Insurance.

Wes and I each used to have health insurance through our employers.

Now, we pay $200 a month for super horrible health insurance. I believe our deductible is somewhere around $12,000, so I know that before our health insurance will even kick in, one of us will have to be seriously ill.

We plan on looking for better health insurance when we plan on having children though. However, I have heard of other self-employed people paying over $1,000 a month for their family’s health insurance, which is a scary number!

Home office.

I’m not completely done with my home office, but I do have almost everything gathered. I have been scouring Pinterest to get an idea of what I want.

A home office costs money. Yes, you can make a home office for cheap, but I am wanting it to be a place where I can get inspired and actually get work done. Luckily, I did get a lot of great gifts at our wedding specifically for my home office, so that will make it cheaper as well.

What other costs do you think would increase if you were to switch to self-employment?

Anything above surprise you?