I’m Self Employed. Can I Qualify For a Home Loan?
What does it take to buy a home when you own your own business?
Once upon a time, in the days leading up to what has become known in the last decade as “The Great Recession,” some lenders would provide a home mortgage to a buyer who simply “stated” their income. As a matter of fact, a decade ago some loan companies would even just take buyers at their word, requiring very little proof that they in fact earned the amount of income they “stated” on their application.
Of course, because of these, and other, bad business practices, we saw the lending market crash and burn by 2008, plunging Santa Clarita, and the nation, into a real estate nightmare. Home values plummeted, and many people, some of which “stated” their income without proof, lost their homes.
Changing Course in Loan Qualification
In the past few years, lenders have made many changes to hold themselves, and borrowers, more accountable. One major change is in how lenders qualify borrowers who are self-employed. For most home mortgage loans, self-employed buyers will now have to show proof not only that they earn the income that they have stated, but that they have a history and track record of earnings to support their loan qualification. Most lenders will require at least two years of the most recently completed tax returns to begin the qualification for business owners. Tax returns will be assessed on your Gross Adjusted Income, and not just your overall gross total earnings. This means that they will use only the amount of income AFTER your tax deductions.
You may also need to provide more up to date income information in the form of business bank statements and/or profit and loss ledgers.
What if my tax returns don’t qualify me for a loan?
You make enough money to afford a house payment, but your tax returns actually reflect a lower income amount because of your Gross Adjusted Income. So, what do you do?
Start by planning ahead.
If you are self-employed and are considering purchasing a home, you may need to put a plan together so that you may qualify for the home you want. Discussing this with a tax professional or CPA can save you time and frustration down the road.
Have your taxes re-assessed.
If your tax returns show a lower income amount than will get you qualified for the home you want, then you may want to have a tax professional re-assess and amend your returns. Now, this may involve a change in your overall tax obligation to the IRS, so you’ll need to take that into consideration.
Talk to the Elgin and Pilar Walker Team FIRST!
We have nearly 30 years experience in helping buyers of all walks and income sources purchase the home of their dreams. Contact us for a no obligation consultation and let us show you how you can achieve all of your real estate goals.