Homebuying for the Self-Employed
More and more homebuyers have “side gigs” or are completely self-employed. If you’re looking to purchase a home and your income isn’t easily tracked on a paystub or W-2, getting a home loan is more complicated. According to the U.S. Department of Labor, about 10% of the workforce counts themselves as self-employed.
Much like someone who has traditional employment, you’re going to have to provide your bank statements, tax returns, investment account records, and be able to document your income and expenses. Being self-employed doesn’t mean you’re less likely to get approved, just that you’re going to have to do a bit more work proving your worthy of that approval.
How the Lender Views Your Income
You may be making the same amount of money, or even more, than you did before you became self-employed so you think a loan should be no big deal. The problem some borrowers face is documenting their income for the lender. For example, you may have lots of write-offs for your business and when you take advantage of them in your tax return, your income seems lower. That skews your taxable income which is compared to your expenses. This results in an approval that may be significantly lower than what you expected and what you can really afford. Another hiccup some self-employed people face is when they have a month that’s completely out of the norm, either too high or too low. This can cause the underwriter to question the consistency of your income.
You’ll need to be prepared to share your business and personal banking information. It helps when you keep your business and personal banking separate, using different accounts and different credit cards. Being able to present a profit and loss statement can benefit you in the approval process. Your lender will review both your personal credit and your business credit comparing the debt to income ratio of both. You’ll also need to provide your personal and business tax returns (all schedules and pages).
Don’t fall into the myth that you can’t get a loan or that you must have a co-signer if you’re self-employed. Just be prepared for a bit more work. If you know that you’re going to be purchasing a home in the next few years, make sure you keep organized records to make it easier on yourself and your lender. Hamilton Group Funding works with the self-employed on finding the best mortgage option and interest rates. If you’d like to get started, contact us today.