So you own your own company and want to buy a home? Or maybe refinance your current home? What do you need to do to get a mortgage? Self employed borrowers qualify for the same mortgages that “traditionally” employed borrowers do – you have the same standards for credit, down payment, debt and income as someone with a regular salary.
The difficult part is documenting your income. Borrowers that are salaried just need to provide a paystub and w2’s. If you are self employed, we need to document that your income is steady and not decreasing, that your company has a reliable cash flow and with covid, we have a few extra steps.
Mortgage lenders will require 2 years of tax returns for anyone that owns more than 25% of a business. We will need to see your personal and business returns (unless you file a schedule C and then we just need your personal return). We need a business license or some way to document your business is active – not everyone will have a business license. We need a year to date profit and loss statement (P&L) and a balance sheet. We may need a signed letter from a CPA that states you are still in business. Underwriters will go over your tax returns to make sure your income is reliable and steady. They will average your income over the past two years. If your income is decreasing, they will want an explanation and they may only use the most current 12 months.
Due to the number of businesses that were closed for a period of time with Covid, we have had to get 3 months of business bank statements to show your income is still continuing. Underwriters are looking for deposits from your business to show activity and also to show your income is still there.
You may want to plan ahead and make sure your income is steady. It may mean changing the way you write off business expenses. Depreciation won’t hurt you, underwriters add that back into your income. Be prepared to answer questions and provide documentation, your CPA may need to give you a letter about questions with your income. Just remember underwriters will look at your net income, meaning the amount left over after your expenses.
Buying a home or refinancing when you are self employed may not be as difficult as you think. Just be prepared and allow time to get your mortgage approval done before you start house shopping!
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
