Day trading is a tricky career when it comes to traditional financing options. Many banks and systems of authority don’t recognize day trading as a steady career, and most require well-documented proof of income to offer any loans or services of the like. So, is it possible for day traders to get a mortgage?
Day traders can get a mortgage, but it can be difficult. You’ll need to work full time for 1 to 2 years to prove on paper that you’re able to make enough money to pay back a mortgage. Many day traders work in a different career for a few years to secure a mortgage before switching to day trading.
While it’s difficult to get a mortgage as a day trader, it’s not impossible. The following article will explore how a day trader can secure a mortgage and some alternative options for buying a home.
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Is There a Possibility for a Day Trader to Get a Mortgage?
Day traders are considered self-employed in the lenders’ eyes, so it is possible for a day trader to get a mortgage. Usually, one will need to be in this career for a few years, keeping documentation of their finances and income. This proof will serve as validation for the lender that the individual can indeed afford the mortgage.
How Can a Day Trader Get a Mortgage?
There are a few different ways that day traders can secure a mortgage. Let’s take a look at these now:
Show Your Proof of Income
The first method of getting a mortgage as a day trader is similar to the traditional way; show the bank you earn enough money to pay them back. You’ll probably need to fulfill the following criteria:
- Has been a trader for at least one year (two is better)
- Does not have any other large debts
- Has a good credit rating
- Can provide the documentation proving you have a steady month-to-month income
- Can show that you have enough in your budget to afford the mortgage payments
- Has access to professional references to raise your reliability
If you can provide your bank with all of the above, there is a possibility that you’ll get approved for a mortgage. However, the lender can still label your income as too unreliable and deny you the loan.
Get Another Job Until You Get the Mortgage
Suppose you’re someone planning on transitioning to a job as a day trader, but you currently have a full-time position elsewhere. In that case, you may want to consider holding onto your current career until you have a mortgage secured. Many day traders decide that the above method is more time consuming than simply working in another job temporarily.
What banks are looking to see when you apply for a mortgage is not just capital but long-term reliability. They prefer to see a steady income that extends at least a year into your employment history, but preferably three or more.
The amount of money you bring in each month will be measured against your living costs and debt payments, and if you have a source of income that is viewed as unreliable (like that of a day trader), it makes lenders wary of approving your application. If you miss out on a few months of income with high debt, you could easily become overloaded and unable to make your mortgage payments—a bank’s worst nightmare.
By holding onto a “steady income” job that provides you with a predictable and reliable salary, you may find it much easier to get approved for a mortgage. Once you have your mortgage secured and have made a few payments successfully, you can transition to day trading full-time.
Use Your Spouse As the Main Applicant
Does your spouse have a steady income? Is their credit score much better than yours? If so, you might want to consider having your spouse apply for the mortgage alone. Sometimes, an individual with a solid credit score and a reliable job is more likely to get approved on their own than in a couple that bears one unreliable income source.
Tips for Getting a Mortgage as a Day Trader
You can take certain steps to increase the chances of getting approved for a mortgage as a day trader.
Provide a Large Down Payment
A lot of lenders can be persuaded to approve an application with the presence of a large down payment. In 2019, the median down payment for first-time homebuyers was 6%. That makes a down payment of $15,000 for a $250,000 house. If you can provide your lender with a much larger down payment—closer to $50,000 or $60,000—there’s much more incentive for them to approve you.
Not only will the lender receive a large amount of collateral up front, but the higher the down payment is, the lower the monthly fees will be. A lower monthly fee gives you more leeway on how much “reliable” income you receive a month.
If you’ve already been day trading for a while, then it might be worth it to continue working hard and saving up so that you can offer a larger down payment when you apply for a mortgage.
Apply for a Private Mortgage
A private mortgage is a mortgage that is not issued through the government or other traditional lenders. A private mortgage is given by a business, small corporation, family member, or friend.
The main benefit of borrowing through a private institution is that the standards set by the government and large corporations can be surpassed. Private lenders don’t have to ask for the same rigorous documentation and income history that the large companies do. A private lender is much more likely to approve a day trader, especially one that can offer a large down payment.
Record Your Income and Expenses
If you are already a day trader and you’re planning on applying for a mortgage in the next few years, the best thing you can do is to document a clear and legitimate record of all of your income and expenses.
Many lenders will want to see validation of any transactions in your account, in or out, that are larger than $1,000. If you can provide a record of your finances, this will sway your approval. Not only because your income is proven, but because you’re proving your reliability as an entrepreneur and self-employed individual.
Use Assets As Collateral
Some lenders, especially private institutions, will consider your assets a collateral source for your mortgage. In a way, these assets can count as an extra portion of the down payment. If you’re confident in your ability to pay back your mortgage (which you should be if you’re applying), then you can offer up any worthy assets you have to strengthen your account.
Essentially, these items become the bank’s property if you ever default on your payments, so you need to be sure that you can afford your mortgage before you write all of your possessions away.
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Conclusion
It is possible to get a mortgage as a day trader. To increase your chances, you should consider the following:
- Keep a steady job until you are approved for a mortgage.
- Save up a large down payment.
- Use your spouse as the main applicant.
- Provide any assets you may have as collateral.
- Consider a private lender.
Whether you follow the above criteria or find your own way to get approved for a mortgage, you can expect that you’ll have a few extra hoops to jump through as a day trader.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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