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 in Denver, Boulder, and other cities in Colorado 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 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.
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 simply log into your account and get your last 12 or 24 e-statements and provide them to a loan originator for a review of your deposits.
You will also need to provide a copy of your business license and/or a CPA letter confirming self-employment for the last 2 years.
Financing is allowed up to 90% of the property's value for a owner-occupied home. Keep in mind that 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.
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.
You may qualify for a new program where you provide just one (1) months of bank statements
→ GUIDELINES BELOW
- 75% Purchase or 70% Refinance; $300,000 up to $5,000,000
- ONLY for Primary Residences; Homes, Condo or Townhomes
- Most recent personal bank statement without NSF's or overdrafts
- Self-employed for 2 years; copy of business license spanning two years or CPA letter
- Two (2) credit scores of 675 and above
- Twenty four (24) month recent mortgage history. Must own real estate in last 3 years
- 3 credit tradelines (credit cards, car loan, or mortgage) with a (24) month history; 1 with 5 year history (account can be open or closed)
- No Bankruptcy, Foreclosure, or Short Sales in the last 5 years
- No collections, charge-offs or tax liens in last three (3) years
The 1-Month program is more strict than the 12-24 month program because it requires excellent credit for the last five years.
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 P&L with a year-to-date P&L (maximum of 85% financing to $2.5M w/ 720 FICO scores)
- 2nd Option - Most recent two years P&L with YTD P&L(maximum of 90% financing to $1.5M w/ 720 FICO 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
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 an income 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.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.