Self-employed Home Loan Programs
If you typically work for yourself and schedule your own hours you are considered self-employed. However, your work schedule usually revolves around when your clients or customers are available so you can earn income.
For income and expenses that are documented one of the perks that comes with being self-employed are the tax write-offs. A reputable CPA or tax accountant in Denver, Boulder, and other cities in Colorado may be able to save you thousands of dollars from the IRS by using 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. S-Corp owners file an 1120S. Deducting every business expense may lower the 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 and that number plays a major role in getting your loan approved. So, if your Schedule C or 1120S shows every possible legitimate expense taken, your net income may not be enough to qualify for a mortgage.
Getting approved for a 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. It's also a good idea that you know some of the 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.
Depreciation
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.
The alternative are non-QM loan programs.
For self-employed borrowers we have some attractive solutions of calculating documented 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 simply log into your account and get your last 12 or 24 .pdf statements and provide them to a loan originator for a review of your deposits.
Minimum requirements for the bank statement mortgage loan
As of Oct. 1, 2023 in order to qualify you will also need the following:
- - A copy of your business license and/or a tax preparer letter confirming self-employment for the last 2 years.
- - 10-percent or more down payment for an owner-occupied home (5-percent down with gift funds of five percent)
- - A 20-percent down payment is required for vacation homes and investment properties.
- - For a refinance 15% or more equity is needed
- - Tri-merge FICO credit score of 660
Eligible properties: single family homes, condos, or 2-4 units used as a primary residence, second home, or investment property
To get the best interest rate we recommend a down payment of 35% or more or refnance with at least 30 percent equity in your home.
How is income calculated?
Your income is based off your work-based bank deposits and an expense factor that is typical in your industry or from your licensed tax preparer.
It doesn't matter which Colorado bank (or big national bank) you have an account with as long as you have online banking you can access them. If you don't bank online, a customer service rep. can still email them to you. We've dealt with all types of challenges.
Consider applying for a newer program where you provide just the last year or two of 1099 NEC statements. It has the same down payment minumums of 5 or 10-percent as the bank statement loan program.
The Profit & Loss Loan
The program works with your CPA providing a Profit & Loss (P&L) statement for your business.
- 1st Option - Most recent year's P&L with a year-to-date P&L (maximum of 80% financing up to $2.5M with 720 FICO scores)
- 2nd Option - Most recent two years P&L with YTD P&L(maximum of 70% financing to $1.5million with 720 FICO credit scores)
- Borrower needs to own a minimum of 25% of the business
- The business must have been operating for a minimum of two years recently
- No bank statements, no tax returns, no IRS tax transcripts
Asset Amortization
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 $500,000 liquid, the lender will derive your monthly income based on an income formula. An example is dividing your current liquid assets of $500,000 by 84 months which gives you $5,9252 as qualifying monthly income. Rates are about .25% higher than the bank statement mortgage.
Investment Property No Doc Program
The underwriter will look at the current rental income of the subject property and the appraisal report's market rent. The property's monthly rental income is used to cover the new mortgage payment, property taxes and insurance. No employment or personal income is necessary or disclosed.
Eligible Properties: Single family homes, condos, and townhomes and two to- four-family properties (higher down payment requirements). Homes with lot sizes of 50 acres or more, log cabins, or agriculturally zoned properties are not eligible.