Can I get a mortgage if I’m self employed?
Yes, of course. The mortgage industry loves you too! I have done hundreds of mortgages for self-employed people. For a conventional loan, like all borrowers, they have to prove they make enough money to qualify for the mortgage they are applying for, and that their income is stable.
There are a few things to understand and this is where things get a little complicated. As it turns out there are more than one type of income. In the mortgage world there is what is termed Qualifying income. That is the income you will get credit for when it comes to qualifying for a loan. Basically, you get credit for the income you pay taxes on, which is what is reported on your Personal 1040. You can also add back in some costs which you deducted from your Gross business income like depreciation and amortization expenses.
Part of my job is to educate and coach people on how their tax returns will be evaluated by an underwriter so that they can make the decision on how much they should write off. Some times it comes down to a tradeoff. Pay more taxes to qualify or pay less and don’t get as large a mortgage.
Another factor is that a business will generally have to be in business long enough to have two full years of Tax Returns. If income is going up then your income will be averaged. If income is declining then you will get credit for the lower, most recent year, but you will have to explain the drop in income and convince the underwriter that it will not continue to decline.
There are other loan products available that do not require Tax Returns but instead look at the business’s cash flow. These carry a decidedly higher interest rate. As much as 3-4% higher than conventional.
