Although they have higher incomes and seek to buy more expensive homes, self-employed borrowers receive 40 percent fewer purchase loan quotes, primarily because of their typically lower credit scores, according to a Zillow Mortgages analysis.
Lenders use several factors to decide whether they want to quote a loan request, including property values, downpayments, income and credit score. For many self-employed borrowers, credit score appears to be a primary factor hampering their access to a mortgage.
"Self-employed borrowers will no doubt face headwinds when trying to get a loan. Low credit scores, coupled with a mountain of paperwork lenders must complete specifically for self-employed borrowers, make them unattractive," said Zillow Vice President of Mortgages Erin Lantz. "So, despite self-employed borrowers with high incomes appearing on paper to be better situated to repay their loan, they're often overlooked by lenders. In cases like this, it really pays to shop around."
How self-employed (SE) borrowers stack up to non-self-employed (NSE) borrowers:
Loan quotes
Even as loan amounts, downpayments and incomes have trended up for self-employed borrowers, the number of loan quotes given to self-employed borrowers has trended down. Today, self-employed borrowers receive six loan quotes for every 10 received by non-self-employed borrowers. In June 2011, self-employed borrowers received seven loan quotes for every 10 received by non-self-employed borrowers.
Credit scores
Self-employed mortgage shoppers are about twice as likely as non-self-employed mortgage shoppers to report a FICO score below 680.
►Self-Employed (SE) Borrowers: Forty-seven percent have self-reported credit scores below 720, while 28 percent have scores below 680.
►Non-Self-Employed (NSE) Borrowers: Twenty-three percent have self-reported credit scores below 720, while 14 percent have scores below 680.
According the myFICO, the median U.S. credit score was 692 in April 2014. But lenders recommend a credit score of at least 740 to get the best mortgage interest rates.
Property values
Self-employed borrowers request loan quotes on homes that are typically 12 percent more expensive than non-self-employed borrowers.
►Self-Employed (SE) Borrowers: The median property value for mortgage requests on Zillow is $352,000.
►Non-Self-Employed (NSE) Borrowers: The median property value for mortgage requests on Zillow is $315,000.
Income
Self-employed borrowers report 81 percent higher household incomes.
►Self-Employed (SE) Borrowers: The average self-reported household income is $145,000.
►Non-Self-Employed (NSE) Borrowers: The average self-reported household income is $80,000.
Income for self-employed borrowers is up by 28 percent since the summer of 2012, whereas the reported household income for non-self-employed borrowers is down 17 percent during the same time period.
Downpayment
Self-employed borrowers put down larger downpayments.
►Self-Employed (SE) Borrowers: The average downpayment for mortgage requests on Zillow was 15.3 percent.
►Non-Self-Employed (NSE) Borrowers: The average down payment for mortgage requests on Zillow was 14.6 percent.
