Self Employed Buyers

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The number of self-employed workers in the U.S. has reached approximately 16 million and continues to grow, according to the U.S. Bureau of Labor Statistics (BLS). Despite a common misconception, homeownership is very much within reach for the self-employed. While there are challenges, obtaining a mortgage is far from impossible with the right preparation and knowledge.

The mortgage application process for self-employed individuals is similar to that for W-2 employees but often requires additional documentation and time. Richard Liu, a mortgage consultant with C2 Financial Corp, notes that lenders need to see "income stability" from self-employed borrowers, necessitating more stringent requirements and thorough documentation.

Self-employed individuals may earn ample income to qualify for a mortgage but often face challenges in proving it. Here are common obstacles and how to overcome them:

1. Tax Deductions: Business deductions can lower your taxable income, which may impact your ability to qualify for a mortgage. Therefore, it's crucial to balance taking deductions with maintaining enough reported income to meet mortgage requirements. 
2. Complex Tax Returns: Lenders must assess various factors, including business type and income flow from business to personal tax returns, which can complicate the process.

These hurdles can be managed with careful planning and documentation.

According to Fannie Mae, lenders evaluate the demand for your business, its location, financial strength, and whether it can sustain your income. Specifically, lenders look for:

• Stable or increasing income
• Consistent work history (preferably at least two years in the same industry)
• Good credit
• Cash reserves to cover low-income months
• A larger down payment if the financial profile is weak

Save time by gathering necessary documentation early. Self-employed borrowers typically need to provide:

• Two years of personal tax returns (complete)
• Two years of business tax returns (all schedules)
• IRS Form 4506-T
• Profit and loss statements
• Business bank statements
• Business verification (DBA or business license)
• List of current debts and monthly payments
• Canceled checks for rent or current mortgage
• Any additional income proof (e.g., Social Security, disability payments)

• Establish a consistent track record of self-employment
• Save diligently
• Keep personal and business expenses separate
• Monitor your credit score and pay debts promptly
• Utilize an accountant to clarify your business and cash flow
• Work with a lender experienced in handling self-employment income.

If you have questions about how self-employment affects the mortgage process, reach out to us today! Our expert Nashville team of  is ready to assist you.