Mortgages for Self Employed Homebuyers Made Simple
Getting a mortgage while self-employed is not hard, provided you plan for it.
The credit requirements are the same, but what makes it different is how one processes income. Namely, is it declared on tax returns?
Here is what you have to show:
Need to be in Business Two Years: You must be in business for 2 years. This is established through the following:
- Letter from CPA noting 2 years of filed tax returns.
- Business Registration as LLC or other corporate entity – verified in SUNBIZ
Income: For income, you can either use your tax returns or you bank deposits.
The challenge in using tax returns is if you have many deductions, what you save by lowering your taxable income, you lose by lowering the loan amount you can borrow.
- Choice 1: Use Tax Returns: For an FHA-VA-USDA Loans, you need 2 years of tax returns. For a Conventional, you need 1 year of tax returns.
How to Calculate:
Count your Business income as listed in your Schedule C or K1, add back any depreciation, and add back ½ of your self-employment. Then, you divide by either 12 or 24 months.
Pros: can qualify for low down payment mortgages, and have options for many more loan programs.
- Choice 2: Use Bank Statements
If your tax returns do not reflect your income, you can qualify via bank statements. Here, you need 1 year for personal bank statements or 2 years for business bank statements.
How to Calculate: Add up all your deposits, divide by 24 or 12 months. For Business Bank accounts, you
Down Side: requires 15% to 20% down and your interest rate will be higher by 1% than traditional mortgages.
Contact me for a no-obligation, no pressure self-employment analysis.