- Before approving you for a refinance, your lender will examine your debt-to-income ratio. Most mortgage lenders want your monthly debts, including your mortgage payments, to equal no more than 36 percent of your gross monthly income, according to Bankrate. The challenge if you are self-employed lies in verifying the size of your gross monthly income. Borrowers who work standard jobs can verify their income with copies of their regular work paychecks. You don't have that option as a self-employed worker. Your paychecks may come far less regularly.
- One way you can prove to your lender you have enough income each year to cover your refinanced mortgage payments is to make copies of your last three federal income tax returns and fax them to your bank or mortgage lender. Each year's tax return shows how much money you made during that particular year. By sending in more than one year's worth of these tax forms, you can show lenders your earnings are consistent, even though you are self-employed.
- As a self-employed person, you might receive several 1099 forms from your clients. These forms, required from every client for which you earned more than $600 in a year, show you how much money you made with your different clients in a given year. Make copies of these documents from the most recently completed tax year and fax these to your lender. Again, your lender can use these documents to verify the amount of money you made in a given year.
- Other factors will show lenders that you are a responsible borrower who can be counted on to make your refinanced loan payments on time. A strong three-digit credit score -- generally, 720 or higher on the FICO credit-scoring system -- shows lenders that you have a history of paying your bills on time. Credit card statements that show you have not accumulated a lot of revolving debt can also show lenders you are a mature consumer. If you have a sizable amount of savings and money in retirement accounts, be sure to show documentation of this to your lender, too.
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