"Retired" to become Self Employed in 2017? Three Tips on How to Secure a Mortgage

Scott Wagar Home Inspections

Many 'second-wave' baby boomers are beginning to consider what to do after retiring from a current job.  Many will take advantage of the opportunity to travel, socialize more etc.  And, many have the hankering to begin their own business to still remain productive, yet have increased flexibility with their time and schedule.

My husband and I both fit into the 'second-wave' population and both are self-employed. we understand how income can fluctuate greatly from year to year.  We also understand, having been self-employed when we purchased our Oregon home, that it can make it difficult to get approved for a mortgage.  There are, however, things you can do to improve your chances.

1. Make sure your credit score is in good shape
While your ability to pay back a mortgage is the most important factor in approval, your credit score is a close second.  That applies for every borrower, not just those who are self-employed.  If you have a high credit score - say something over 750 - it will help you get approved for a mortgage.  To boost your score, make sure you pay all bills on time, pay down your debt levels, and don't make any new big purchases or apply for new credit soon before you apply for a mortgage.

2. Have a large down payment
The more money a bank lends you to buy a house, the more risk it is taking on that the money won't be paid back. If you are self-employed and considered a higher risk to begin with, one way you can alleviate some of that risk is to be able to put down a large amount of money.  Putting down 20 percent is standard for a conventional loan, and you should be willing to contribute at least that much. Putting down at least 20 percent also will save you money in the long run, because you won't have to pay for mortgage insurance and you will pay less in finance charges over the life of the loan.

3. Have Significant Assets
One way to put a lender at ease about your ability to pay for mortgage is to have significant reserves in the form of assets.  If you have large amounts of money in regular savings, brokerage and retirement accounts, it offers a reserve for you to tap should your income take a dive.  Other forms of property, such as personal and business property that's paid off and have value, also help.

Being self-employed can be a very rewarding and convenient choice for many people.  By being in business for a couple of years, keeping accurate records, and having a good credit score you help set yourself up for a less challenging time in obtaining a mortgage loan.