It seems like the past few years have brought an influx of self-employed borrowers because so many people are turning into entrepreneurs and excitingly starting their own businesses.
But what does that mean for you when you want to buy a house? The way self-employment works in the mortgage world is by using your tax returns. The lender will look at the previous two years of your tax returns. So if you’ve only worked a year-and-a-half in the self-employed world and you’re ready to buy a house, unfortunately, they cannot fund those loans until 2 years of tax returns have been filed. Once there are two completed years of tax returns, the next question is how is your income calculated. If you are like me as a self-employed entrepreneur you like to write everything off because we spend a lot of money on marketing supplies and other things. However, when it comes to starting to think about buying a house you may want to reconsider what you write off and you may want to write less off for a couple of years to show more income. This way you can qualify for a larger amount. The actual number that a lender is going to look at is your average adjusted gross income for the past 2 years.
Lenders are also looking to make sure your income is and will stay consistent. So they may want to check your business bank statements for deposits and will ask for your Profit & Loss statement from last year as well as your balance sheet year to date. Also with COVID, there are specific underlays that each lender has to make sure that your business has been unaffected. Another thing you may want to look at is your social media. I know that sounds weird, but lenders are going to check your Facebook/ Instagram to make sure you are consistently posting about your business.
If you have any more questions about being a self-employed borrower please feel free to contact me. Don’t forget to subscribe to my channel for weekly content on buying or selling Real Estate. Oh, and did I mention Congratulations on becoming an entrepreneur!