Loans For Self Employed

Banks are now offering loans for self employed individuals to make financing a reality for the individual choosing to work from their home. As freelancing and consulting grow in popularity, and the need to reduce the cost of overhead expense grows; the world is starting to view self-employment as respectable and valid. Even financial institutions are beginning to legitimize, and rightly so, the work-at-home professionals. Historically, lenders used to turn down loan applications from freelancers or make the interest rates so high that the work from home professional no longer found the financing worth the fees being charged. Regardless of how successful the person was who worked from home, the financial institutions considered her essentially unemployed. These perceptions are certainly changing, and now consultants and other work at home professionals are being viewed as entrepreneurs and ambitious individuals. Entrepreneurs pay their loan payments. As a result of these changing perceptions, financial institutions are becoming more open to lending money to freelance professionals, consultants or small business owners.

Now most banking professionals will offer loans for self employed individuals who have a checking account and income records dating back three or more years. This places the burden of proof on the potential borrower to keep clear and detailed records of all payments and expenses. Likewise, keeping the checking account solvent is a necessity in proving a freelancer's financial stability. If the work-at-home professional can provide these documents, then the loan application will be processed as if she is an employee of an existing business. If, however, she cannot prove her financial stability, has been in business for fewer than three years or failed to keep her accounts and records in order, the loan will not be very easy to obtain. This is not to say that it is going to be impossible to get financing if a work-from-home professional has been in business for a short amount of time or had a few negative balances in the bank account statement. The financial professionals will usually work to get the individual the loan she needs, but this usually comes at a price, in the form of higher interest rates and more fees.

To qualify for the best loan and to just maintain his own integrity, a freelancer or consultant should strive to claim as much of his actual income as possible when reporting to the Internal Revenue Service. There are times when a stay-at-home professional could be tempted to claim less money in order to pay fewer taxes. When it is time apply for loans for the self employed, these individuals can only claim the earnings that they reported on their income tax reports. If the claimed income is a lower amount, the large loan they want might not get approved, given the lower salary that they claimed on their taxes.

Self-certified mortgage loans are loans for self employed individuals that allow the borrower to simply state his income and certify that he is being honest. Fewer and fewer banking professionals are willing to finance a stated income loan, because history has shown that potential borrowers often lie to get the loan. This deception led many lending institutions to lose money on stated income loans. For this reason, keeping detailed records will always benefit the potential borrower in any lending situation, but especially when the applicant is a work-from-home professional.

One out of every five people who leave standard employment in order to work from home fails and returns to regular employment. This is a twenty percent failure rate. Unemployment rates are not even that high. It is far more likely for a work-from-home professional or a consultant to lose income than it is for a person in a standard employment situation. Therefore, the financial risk is greater for the banks to provide loans for self employed people than it is to finance a mortgage package for an individual who works outside the home. To offset the possible financial losses, the lending institutions usually require between twenty and thirty percent of the total amount as a down payment on loans for self employed people. A mortgage loan to a person working outside the home typically only requires between three and ten percent.

A person's credit score and credit history are invaluable to the application process for loans for self employed borrowers. The loan-to-value ratio of the financing packages offered to work-from-home professionals are from seventy to ninety percent. This means that the lending institutions will loan up to ninety percent of the individual's proven income. However, outstanding credit card balances and other revolving debt subtract from the income the bank considers in the equation. For this reason, the consultant or work-from-home professional should attempt to pay off any credit card balances and reconcile accounts before approaching a lending institution about loans for self employed individuals. The changes made to an individual's credit history after the loan application is in process do not affect the outcome of the application. It is wise for the self employed individual to try to clean up her credit report before even applying for the loan.

Even for the freelancer or consultant with poor credit, there are financing options. The application process will still require a credit report, proof of income and bank account records. However, the requested down payment may be more, and the interest rates will be significantly higher for the loans for self employed people who happen to have bad credit. In the end, this still may be worth the higher interest rates if the loan benefits the long term goals of the home business. "As a servant earnestly desireth the shadow, and as an hireling looketh for the reward of his work." (Job 7:2)

Add to: File Insurance Business article Teen Photo Images