Over the years at Archwood, we’ve helped many, many self-employed borrowers obtain mortgages at competitive, market rates. Just because you work for yourself doesn’t mean you’re not a good credit risk!

Here are 10 Tips for Self-Employed Mortgage Borrowers that you need to know if you’re looking to get a mortgage:

1. You need to be self-employed for at least 24 months. This is to show that you have a history of consistently earning your own money.
2. You are considered Self-Employed if you own 25% or more of your business. Even if you have partners and maybe aren’t the CEO, even if you get a salary and a W2, you can still be considered self-employed based on your ownership percentage in the business.
3. You have to have filed your tax returns for both yourself AND your business. If you have a sole proprietorship, you’d have a Schedule C included with your personal return – that’s fine. For an LLC or a C or S-Corporation, it’s common to have a separate return for the business. Either way works fine.
4. For LLCs and S-Corporations, you’ll need to provide a copy of your K-1. That tax document from the business shows how much of their income and expenses are allocated to you.
5. If the borrowers on the mortgage don’t own 100% of the business, the borrowers only get credit for their share of the business profits.
6. Your income is determined using your tax returns’ “Net” income NOT your “Gross” income. That means the underwriter will deduct all of your expenses from your Gross income and then arrive at a Net figure.
7. Depreciation is not counted against you, so that gets added back. You may be depreciating equipment or a vehicle or a real estate parcel. None of those will count against you since they are “non-cash” expenses.
8. Your Net income is averaged over the previous 24+ months (if it is increasing), or the last 12 months will be used (if it is decreasing). Ideally, the underwriter will want the 2 previous tax returns and will use the figures from those. If your business isn’t old enough to have filed 2 returns, your loan officer and underwriter will determine the paperwork they’ll need – often a year-to-date Profit and Loss Statement brought to within 90 days of the application date on your mortgage will work.
9. If you and your accountant are experts at showing little or no income on your tax returns, you will have a problem! We have seen this more than a few times and had to tell borrowers that we could not get them a mortgage at all. We must have enough income showing on your tax returns to get your mortgage approved.
10. The lender must be able to prove the existence of the business – business license, state corporation commission records, white pages search, IRS letter assigning EIN, letter from CPA, etc.

So there you have it – it’s a little more paperwork than for someone with a salary, but it’s pretty straightforward to get you approved if you have the income needed to qualify.

If you have any questions or need to discuss some specifics about your own income or tax returns, please get in touch. We’d be happy to walk through what you have and give you our opinion and advice as to how you could proceed toward getting a mortgage.