You can refinance when self-employed. This article will provide a few basic tips and suggest certain options for refinancing.
Refinancing when you’re self-employed can be challenging. Not impossible by any means, just more complicated, extensive, and time consuming. Compared to a typical refinance for an employee, self-employed refinancing requires more documentation, including, possibly, a look into the nature, history, and strength of your business.
While the process can be more challenging, refinancing when self-employed is entirely possible. With these tips, you’ll have a faster, smoother process while increasing your chances of approval.
How to Refinance When Self-Employed: 9 Simple Tips
1. Be Patient if You Refinance When Self-Employed
The first tip we can give you, one that should stick throughout the entire process, is to stay patient. Refinancing takes time in the best of circumstances, but, because of the nature of your employment, it could take as much as a month or more in certain situations. Be patient, work with the lending agent, and you’ll eventually complete the refinancing process.
2. Prepare for Thorough Documentation
There will be many different documents requested by the lender if you refinance when self-employed. These can include bank statements, tax returns, business information, and much more. If you plan on applying for refinancing when you are self-employed, you’ll want to prepare, gather, and organize these documents as soon as possible.
3. Check and Improve Your Credit
Like all other types of refinancing, your credit will be an important factor if you refinance when self-employed. Self-employed professionals should check their credit well in advance of the loan, and make changes to improve their credit if any issues are discovered.
Start by reviewing your credit report and making sure all details are accurate. If there are any outdated or inaccurate details, contact the credit bureaus to have them removed. If your score is low, you may be able to improve it by reducing your total debt load and maintaining on-time payments for an extended period.
4. Work with an Accountant
Many self-employed individuals prefer to do things themselves. There’s a get-it-done attitude that is certainly admirable, but when it comes to tax returns and other financial documents, it’s usually wise to work with a professional accountant.
Your tax returns, while not the central focus of your application, could be used to help reach approval. If these returns were prepared by a professional, the lender can trust their accuracy and they are more likely to use them on the loan.
5. Create a P&L Statement
The lender, for obvious reasons, will want to ensure that your company is strong, healthy, and will sustain itself in the future. There are many documents used to track incoming and outgoing finances, but the profit and loss statement, often referred to as the “P&L,” is one of the best.
We won’t go into the fine details, just know that the P&L is a report of a company’s revenues, expenses, gains, and losses over a certain period, usually a year. This document will help lenders see that your company is functioning well and has a positive flow of cash.
6. Report ALL Income to Lender
You income could come from a variety of sources. You may have numerous clients, thousands of customers, or dozens of stores. Regardless of the specifics, it can be easy for an income source to be lost in the shuffle, but you should document each and every payment and revenue so that the lender can see as much income as possible.
7. Decrease Your Debt Load to Refinance When Self-Employed
The debt-to-income ratio is one of the most important stats for lenders, including a refinance when self-employed. They want to know that your total debts will not make it difficult to repay the loan. Although a refinance should result in lower payments (when done correctly and not a cash-out), it helps your cause if you can reduce the total debt load.
Pay off any loans that you can, and avoid taking on new debts that will only add to your total. Maintain a manageable debt load and you’ll be more likely to reach approval for your refinance.
8. Maintain Cash Reserves
While different refinancing products can have specific requirements for cash reserves, it never hurts to have a bit of cash in savings. If you can show these savings to the lender, you’ll demonstrate your overall responsibility with money and reliability as a borrower.
9. Respond to Document Requests Quickly
Finally, we would encourage you to respond to all document requests as quickly as possible. When a lender needs a certain document to process the loan, they basically have to halt the process until that document is received. To keep the process moving, respond to the lender and let them know you received the request. Then find the document and send it to the lending office as soon as possible.
Use a Bank Statement Loan to Refinance When Self Employed
Refinancing when you are self-employed can be difficult. To help make things easier, we offer refinancing thorough our bank statement loan program. These loans are convenient ways refinance a high-interest or expensive loan, and they could help you reduce the payments and enjoy a more manageable interest rates.
With these loans, your bank statements form the basis of the application. Instead of traditional documents like paystubs and tax returns (which you may not have anyhow), these loans use your bank statement information, which shows income, expenses, and other details that can be important when completing an application.
Bank statement loans are available as rate or term refinancing, as well as cash-out refinancing. This gives you plenty of options and even allows you to turn built-up equity into useful cash. It can be used with credit scores as low as 620, and could bring a lower interest rate than many other options. It’s also available for financing that ranges into the millions of dollars, allowing you to refinance some of the largest loans.
Want to learn more about refinancing for self-employed professionals? Contact our team today and let us help you find the right program for your specific needs. Regardless of your profession, if you need to lower your rate, extend the loan terms, or turn equity into cash, we are here to help!