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Is getting mortgage approval harder if I am self-employed?

According to Bankrate, the number of people who are self-employed in the United States is on the rise, which means an increasing number of people who own their own business are going to approach banks for mortgage loans for their new homes. However, being self-employed may make it more difficult for a Pennsylvania lender to approve your mortgage loan. This is because lenders want you to prove that you have a steady income and that your business is stable. 

To prove income, self-employed workers generally have to provide more paperwork to a mortgage lender. For instance, a person who is regularly employed may only have to provide a standard federal tax return from one year. However, a self-employed individual will likely have to hand over at least two years of tax returns, particularly if that person is a contractor who generates income from commissions or bonuses.

If you are a small business owner, a lender may want a profit and loss statement from you in addition to your 1099 form. Some lenders also require an accountant to sign a letter for you that states you are currently still in business. Additionally, self-employed persons should have documents that list their assets and liabilities on hand if a lender wants that information. 

You can run into problems if you intertwine your personal and business expenses, since it makes it more difficult to accurately show a lender the profit and losses from your business. Also, adding in personal expenses to your business expenditures might end up lowering your credit score, which can make it harder for you to be approved for a loan. So make sure that your business transactions are kept separate.

It is true that self-employed people have to provide more documentation when applying for a mortgage loan. However, the process itself of getting approved is not that different than if you were employed by someone else. Lenders simply want you to prove that you have a stable income. Since real estate transactions vary from person to person, do not consider this article as legal advice. Read it only for general information.

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