The Self-Employed Home Buyer

When you’re self-employed and you want to buy a home, you fill out the same mortgage application as everyone else. Mortgage lenders also consider the same things when you’re a self-employed borrower: your credit score, how much debt you have, your assets and your income. It is true that self-employed homebuyers do have to jump through a few more hoops than a W-2 employee. Specifically, you’ll have to validate your income and self-employment history and have a record of uninterrupted self-employment income, usually for at least two years.

Since business owners or freelancers usually have an income that fluctuates, lenders have to take a closer look at the vitality and stability of your business. As far as what type of loan you can apply for, independent workers are eligible for the same standard home loans, such as conventional, FHA, VA, USDA, and even jumbo programs, as everyone else.

What Lenders Will Look At

• Your debt-to-income ratio (DTI)
• Income stability
• The location and nature of your self-employment
• The strength of your business financially
• The ability of your business to generate sufficient income in the future

Depending on how your business is structured, you might be asked for two years of your 1099s or a statement from your accountant as proof of self-employment history. Lenders look at the net income when you’re self-employed versus the gross income of W-2 workers.

If you’re a contractor, beautician or another professional requiring a license, you could show a lender your state license as proof of how long you’ve been in business. You’ll also need to bring a signed year-to-date profit and loss statement, balance sheet, and at least three months of business bank statements.

Self-employed For Less Than Two Years?

You can still get a mortgage on your home, even if you’ve been self-employed for less than two years. Ultimately, your business must be active for a minimum of 12 consecutive months, and your most recent two years of employment (including non-self employment) must be verified. Your lender will likely do an in-depth look at your training and education to determine whether your business can continue a track record of stability.

Things To Keep In Mind

Whatever money you’re earning—including tips—counts. Lenders are mainly looking to see if your income is stable. Make sure to also include money earned at part-time gigs, seasonal and odd jobs.

If you charge business purchases, such as office supplies and equipment, to your personal card, you’ll increase your credit utilization. This could have a negative effect on your application. Keep your business and personal expenses separate by giving them their own accounts and credit cards. This will project a more favorable, truthful profile on your application.

Generally, processing a mortgage application will take the same amount of time as it does for a traditional borrower. However, gathering all your documentation can sometimes stall the process, especially if your business has recently experienced changes.