Homebuying shouldn't be an unattainable goal, but, unfortunately, many self-employed individuals find that it is—especially when trying to go through a traditional big bank.

Even the most well-prepared entrepreneur faces numerous challenges going through the application process. 

But if you had an inside look at what lenders want to see most when considering your application, you could streamline the process and boost your chances of success.

You're in luck: we're ready to equip you with four expert tips that will put you ahead of the game.

1. Analyze Your Income

Unlike salaried employees who have plenty of documentation to prove their income, analyzing and calculating self-employment income is a little more complicated. 

The best place to start gauging your financial situation is your bank account—be it business or personal. 

See, it's a common misconception that lenders only use your net income when determining your financial stability. The truth is they can and will use your gross income to qualify you for a loan up to $2.2 million. 

Here's what you need to do. 

Gather 12 Months of Bank Statements

Almost every bank institution nowadays lets you log in to your account and download a PDF version of your monthly statements in full.

While it might feel invasive and even slightly uncomfortable to see how your money is allocated each month, lenders really aren't paying attention to each and every transaction. 

They're much more concerned with seeing a complete picture of your overall financial situation and making sure the numbers add up.

So it's imperative that you include every page of the statement, even if the last page is blank. Don't just hand in the pages that show the gross income deposits.

Analyze Cash Flow Coming into the Account

Every PDF bank statement has a ledger that summarizes the account activity (deposits, withdrawals, starting and ending balances, etc.). This is typically located on the first page of your statement. 

You want to look for a number representing the total gross deposits coming in as this will help determine your borrowing power. You don't need to worry about remaining balances or anything else. 

We've highlighted the information you should be looking for on a sample bank statement below. Keep in mind that your statement may call this credits, deposits, or some other variation.

2. Calculate Your Expense Ratio

Now that you have your gross income and statements in hand, it's time to calculate how much you're putting out in expenses. This information is critical in determining your overall debt-to-income ratio and financial health.

For example, businesses with ten or more employees already have a fairly high expense ratio due to payroll, insurance, and other operating expenses. 

However, self-employed individuals or small businesses with less than five employees might have even higher ratios in comparison to the income they're bringing in. 

You can calculate your expenses ratios on your own, but we highly recommend working with a certified public accountant (CPA) to get a better understanding of your expenses for two reasons:

1. CPAs know the ins and outs of tax liability and are able to provide you with an accurate picture of your actual taxable expenses.
2. Lenders will be able to use your CPA's certified expense ratio instead of their standard ratio (which could be significantly higher than your actual expenses).

3. Get a CPA Letter

Since you're most likely already working with an accountant, you should ask them to draft up a CPA letter that:

• Confirms your ownership of the business (expressed in a percentage) that lenders will use to calculate your income
• Details how long you've been self-employed for
• Assures the lender that using this income will not have a negative impact on your business

This document provides an authoritative assurance of a borrower's financial standing and encourages lenders to move forward with the approval process for their mortgage loan.

Having this item readily available will make your entire application process go much smoother.

4. Determine Your Budget

Many self-employed individuals typically aim to put down as little as possible since most of their cash flow is reinvested into their business. It makes sense. 

You don't want to use up all your cash reserves, otherwise you won't be able to support your daily business expenses. 

But on the other hand, a low down payment means a higher monthly payment which could pose a problem if your financial situation changes. 

So what's the best course of action?

Be honest with yourself, evaluate the liquid assets you have available to assist your purchase, and stick to your budget. Knowing what you can and can't afford is essential when it comes to navigating the real estate market.

When you have a solid grasp of that, negotiating with lenders will be a lot easier because you'll be able to support your decision.

Take the Next Steps With Modern Day Lending

At Modern Day Lending, we specialize in helping self-employed individuals realize their dream of homeownership with a minimal down payment. How do we do it?

We have access to dozens of competitive programs, giving you the opportunity to find a solution that fits your budget. Plus, we're licensed in all 50 states, so no matter where you live, we can help. 

With over two decades of experience in the mortgage industry, we're experts at navigating complex underwriting and finding you the best loan program for your situation. 

Here's what you'll need for pre-approval:

• Proof of Income: Make sure you have 12-24 months' worth of business or personal bank statements handy.
• CPA Letter: This letter should contain all of the information described above.
• Business Questionnaire Form: This will give us important information we need to find the right loan for you.
• Personal Asset Statement: We need two months' worth of these statements.
• Driver's License: This is a general requirement to verify your identity.

Reach out to one of our mortgage experts, and let's take the next steps to secure your mortgage.