Self-employed Home Loan Programs
If you typically work for yourself and schedule your own hours, you're self-employed. However, your schedule usually revolves around when your clients or customers are available.
For income that is documented one of the perks that comes with being self-employed is the tax write-offs. A reputable CPA or tax accountant may be able to save you thousands of dollars from the IRS by knowing all the legal ways you can claim business expenses.
The majority of self-employed people are sole proprietors (1099 independent contractors) and file Schedule C with their tax return. This IRS form allows you to declare any valid business expense and will show either a profit or loss. It may also lower your tax bill significantly each year which is a huge benefit for self-employed people.
However, when it comes time to get a mortgage, the lender looks at the "net" income of the applicant (W2 or 1099'd) and that number plays a major role in getting your loan approved. So, If your Schedule C shows every possible legit expense taken, your net income may not be enough to qualify for a mortgage.
Getting approved for mortgage when you're the owner of the business or an independent contractor means the mortgage originator you work with should have some expertise in this area as well as you should know some things that will be asked. Here's an overview.
1. Length of self-employment.
Your most recent tax return needs to show that you have been self-employed during the most recent 12 months. Tip: If your most recent tax return shows higher net income than the previous year, we have a great solution.
2.) How to show more income
Are you aware that your net profit on the loan application can be higher if you have specific expenses?
What we can add back to your net profit to help qualify.
One-time non-recurring expenses
The home office deduction
and a couple more.
Another possibility if that does not help is to consider paying more in taxes with less deductions to qualify for a home loan. An opportunity to refinance or purchase a home doesn't have to be postponed on the basis that you're looking for a mortgage and self-employed.
ALTERNATIVES: No Tax Return Loan Programs
For Self-employed borrowers with a 20% down payment and credit scores over 640, we have some attractive solutions of documenting income another way that requires no tax returns or IRS tax transcript forms.
The Bank Statement Loan Program
With this program, we will review your last 12 - 24 months of bank statements (personal or business checking accounts). You will also need a copy of your business license and/or a CPA letter confirming self-employment for last 2 years. Financing is allowed up to 85% of the property's value for a owner-occupied home but rates are better with 25-30% down. The property can be used as your primary residence, second home, or investment (2 - 4 units too). No tax returns or transcripts are necessary.
Your monthly income is determined by your total eligible liquid asset balances (savings, money market, CDs, Brokerage, IRA or 401k accounts) using various formulas. If you have $1,000,000 liquid, the lender will derive your monthly income based on a formula.
Investment Property Cash Flow program
We will look at the current rental income of the subject property and the appraisal report's market rent. The property's monthly rental income must be able to cover the new mortgage payment, property taxes and insurance. No employment or personal income is necessary.