How To Choose a Private Mortgage Lender for Self-Employed

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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Buying a home can be one of the most exciting experiences. If you’re a W-2 employee, the home buying process is almost straightforward. But what happens if you’re self-employed?

If you’re a small business owner, gig worker, or independent contractor, securing a mortgage can be more challenging than if you were a W-2 employee. This is because mortgage lenders typically view self-employed individuals as high-risk borrowers.

Just because it can be hard to verify your income doesn’t mean you can’t get a mortgage. Fortunately, private mortgage lenders have made it easy for self-employed borrowers. Still, you’ll need to document your monthly income.

Find out what private mortgage lenders are for self-employed, how they differ from traditional mortgage lenders, and things to look at when choosing one.

Traditional and NQ Mortgage Loans

Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

What is a Private Mortgage Lender?

A private mortgage lender is a private corporation or individual that lends out their own money. You can think of private lenders as “saviors” to self-employed people looking for a mortgage loan but do not qualify for a traditional mortgage.

While it may seem like a surefire way to get a self-employed mortgage, you’ll need to provide a lot of paperwork to prove whether you have a steady income and can repay the loan. It comes with trade-offs, too 一 a higher interest rate and fees than those offered by conventional lenders.

How Do They Differ from Traditional Mortgage Lenders?

Traditional lenders, sometimes called conventional lenders, issue mortgages not governed by a government entity but issued by private lenders like banks, credit unions, and mortgage companies. These mortgages usually have attractive lower interest rates, but it can be time-consuming to apply, and it can take up to 60 days to get the funding.

Unlike traditional lenders, private mortgage lenders issue loans that are not underwritten using third-party guidelines. Instead, they have a different mortgage process. As a result, the approval process is way faster than traditional lending. Plus, borrowers who may otherwise not qualify for conventional lending have the opportunity to purchase a home or refinance. 

Are There Benefits in Getting a Loan from a Private Mortgage Lender?

Using a private mortgage lender comes with several benefits, including:

  • Easier to Qualify: If your finances are not in good shape, you may find it challenging to qualify for a traditional mortgage. Since the 2008 housing market crisis, lenders have been more hesitant to lend out money to borrowers with less-than-stellar credit. Private mortgage lenders, though, have more wiggle room when it comes to lending. 
  • Simple Mortgage Application Process: The application process for a mortgage through a private lender is seamless. While most lenders accept online applications today, applying for a private loan is often easier as you don’t need to submit tons of paperwork.
  • Fast Approval And Funding: With a streamlined loan application process, you can typically expect faster approval and funding. This means you can close on the sale of your home quickly too. In most cases, you receive funding from a private lender in a couple of days, unlike banks that take weeks or months.

Is It Harder to Get a Mortgage for Self-Employed?

Generally, it can be difficult to secure a mortgage if you’re self-employed because lenders view you as a high-risk borrower. In addition to that, you’ll need to provide more paperwork to document your income. Plus, not all lenders offer self-employed mortgages.

However, the criteria used to determine a borrower’s eligibility for a loan are typically the same as that for a qualified mortgage. The requirements needed to qualify for a self-employed mortgage loan vary widely by lender. Generally, most lenders will look at your credit scores, debt-to-income ratio, and proof of income.

But, as long as you meet the requirements needed by lenders, you can easily secure a mortgage.

Questions To Ask Yourself in Choosing a Private Mortgage Lender for Self-Employed

Choosing a private mortgage lender can be intimidating, especially for first-time home buyers. Here are a couple of questions you should ask yourself when deciding on a private lender.

Traditional and NQ Mortgage Loans

Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

Can a Self-Employed Individual Qualify for a Mortgage?

Yes, you can get a mortgage as a self-employed borrower. Generally, you need at least two years of self-employment income to qualify for a mortgage loan, as per Fannie Mae and Freddie Mac guidelines. However, in some scenarios, you may get a mortgage even if you’ve been self-employed for one year.

What Are the Requirements?

Requirements vary from one lender to another, but they’re nearly similar to what conventional lenders look at when evaluating a borrower’s ability to repay a loan. For example, mortgage lenders typically require various documentation, including but not limited to your tax returns, credit report, DTI ratio, and proof of income. 

Ensure that you read the fine print of the requirements and gather the documentation required before sending in your application.

Does the Lender Require Collateral?

Depending on the loan type you’re looking to get, your lender may ask for collateral to back up the loan. Collateral is an asset the lender can seize and sell if you default on the loan. If the lender requires collateral, which assets are acceptable as security for the loan? Make sure you know this upfront to avoid making costly mistakes. 

What Are the Terms and Rates of the Mortgage Loan?

Loan terms dictate how long you have to pay back a loan. Mortgage loan terms usually range anywhere from 5 to 30 years. Are you planning to adjust your loan term if your financial situation changes at some point? If so, ensure that the lender can allow you to switch smoothly.

What rates does the lender offer? The interest rate gives you an idea of how much money you’ll need to pay back over time. The lower the rates, the better.

How Are Payments Made?

How you’ll make your mortgage payments differs based on the lender. That’s why it is crucial to know if it’s monthly, biweekly, or even small manageable daily payments. 

What Happens If You Miss Payments?

Missing or falling behind on mortgage payments might hurt your credit score. Even worse, you’ll probably owe more as penalties, fees, and other costs build up. When choosing a lender, ask what will happen if your financial situation changes and you miss your monthly payments.

What Are Others Saying About the Private Mortgage Lender?

Reviews can tell you a lot about a lender. Look at what previous customers are saying about the private lender by reading reviews. This way, you’ll get a rough idea of the service you’ll get if you commit yourself to a particular lender. Of course, you need to work with a lender whose previous clients are satisfied.

Where to Get Private Mortgage Loans for Self-Employed Individuals

You can get a self-employed mortgage through Angel Oak Home Loans, a full-service lender that offers innovative mortgage products to employed and self-employed borrowers. The available mortgage options through Angel Oak Home Loans include:

Are you ready to pursue your dream of homeownership? Fill in a simple online form to get a free quote for a self-employed mortgage of your choice.

Angel Oak

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