Mortgage Tip: Loan Qualifying For Self Employed Borrowers

Loan qualifying for the self-employed hasn’t gotten all that more difficult, it just feels like it has.

Self-employed borrowers historically, have always had a difficult time with the loan qualifying. Stated income loans used to be the main outlet for these folks. These folks tend to write off all business expenses, and after factoring in taxes, there is little income left over for qualifying purposes.

The best possible mortgage tip for self-employed borrowers would be to show an annual net profit and have large expenses on top of that. This is going create a compound effect for loan qualifying which will help the self-employed borrower get a mortgage.

Loan qualifying for self-employed borrowers breaks down like this:

-Schedule C. of the federal income tax return for 2009 and 2010
-Locate Line 31 net profit and loss
-add back to that figure line item number 6 non-recurring income or expense
-add back line item number 12 depletion
-add back line item number 13 depreciation
-add back line item number 24B meals and entertainment
-add back line number number 30 business use of home
-add back line item number 44a mileage depreciation

Now do this for the last two years and then divide by 24 (which represents two years). This will give you the amount of income we can use for loan qualifying. This is also how mortgage loan underwriters calculate sole proprietor Schedule C. Income.

Loan qualifying for self-employed borrowers can also involve rental properties.

This is great if you are sole proprietor, but what happens when you have a rental property or two? How is that income factored into the equation?

Here’s how:

Locate Schedule E. of the last two years of federal income tax returns Rent and Royalty income
-Go to lines 3 and 4 Gross rents and royalties received
-add that to line item number 18A amortization/casualty loss
-add that to line item number 19 total expenses before depreciation

Mortgage lenders will be looking for two years of tax returns, both personal and corporate if there is a corporate tax return, a business license or a CPA letter verifying two years of self-employment as well as a current year-to-date profit and loss statement.

To get a home mortgage approved fast be prepared to show and paper trail everything. If there are business debts that show up on a personal credit report, documentation will need to be provided if those debts are to not be used in factoring into the debt to income ratio and subsequent qualifying ability.

Give me a call Scott Sheldon at 707-217-4000. I help with loan qualifying for self-employed borrowers.

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RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

When buying a home, it’s natural to want the lowest mortgage rate possible. But sometimes, chasing a slightly better rate from another lender—especially after your offer has already been accepted—can backfire in a big way. Let’s walk through a real-world scenario. You’ve got an offer accepted on a house. You’re working with a lender who has you approved, documents in underwriting, and a 21-day close of escrow in place. Everything is moving forward. Then you hear from another lender offering a rate that’s 0.25% lower, with slightly better closing costs. It’s tempting. But before you make a jump, here’s what you need to consider. Switching Lenders Comes with Time Costs When you pivot to a new lender mid-contract, they’ll need to: Re-underwrite your entire loan, Order a new appraisal, Disclose and sign new loan documents, Submit the file for final loan approval, Schedule and fund closing—all over again. This doesn’t happen overnight. Even in ideal circumstances, the new lender is likely going to need at least 25–30 days to close. If you’re in a fast-moving or competitive market, this is a real problem. Most sellers won’t grant a contract extension just because you’re switching lenders. So, what happens next? A Contract Extension Can Jeopardize Your Deal Asking for a contract extension means the seller must agree to delay closing. But that delay introduces risk—especially if the seller has backup offers or simply wants certainty. They may not grant the extension. Or worse, they could cancel the deal outright and take another buyer’s offer. Even if the seller agrees to extend, your earnest money and negotiation power could take a hit. And for what? A slightly lower rate that might save you $50 to $75 a month? Mortgage Rates Aren’t as Far Apart as You Think Here’s the truth: all mortgage lenders get their money from the same place—the bond market. The pricing differences between lenders usually range from 0.125% to 0.25% in rate on any given day. If one lender seems to be offering dramatically better pricing, the first thing you should ask is: How? Head over to FreddieMac.com and check the average 30-year fixed rate posted weekly. This is one of the most reliable benchmarks for where rates truly stand in the market. If a lender is quoting you a rate that’s well below that average, ask for the details: Are they charging extra points? Is this a teaser rate with a prepayment penalty? Is it based on a different loan product or risky structure? Often, what sounds “too good to be true”… is. Consider the Bigger Picture Think long-term. If you’re financing $600,000, a 0.25% lower rate may reduce your payment by roughly $75/month. But what if you lose the house and have to start over? That monthly savings doesn’t mean much if you’re outbid on your dream home or lose your deposit. Also, remember: you’re not going to keep this rate forever. Today’s homebuyers typically refinance when rates drop by about 0.75% or more. So if rates fall within the next year or two, you’ll likely be refinancing anyway. Instead of paying extra points now or risking the entire deal for a minor monthly savings, it may be better to accept a slightly higher rate—knowing you’ll refinance when the time is right. The Real Risk Isn’t the Rate—It’s the Delay When shopping for a home loan, don’t just ask, “What’s your rate?” Ask: Can you close on time? Is this rate sustainable or based on hidden costs? Will switching lenders delay or jeopardize my contract? A home purchase contract is a binding agreement between you and the seller to perform within a set timeframe. If you can’t meet those dates because you're chasing a slightly better rate elsewhere, you may want to reconsider if now is the right time to buy. Final Thoughts Yes, interest rates matter. But execution matters more. Before making a switch mid-transaction, talk to your lender. Have an honest conversation about pricing, timelines, and strategy. You might find that staying the course, securing the house, and planning to refinance later offers a better path to financial security. Want to Know Your Options? Let’s compare rates and strategies the smart way—without risking your dream home. 👉 Click here to get a custom rate quote today.

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8 Comments

  1. […] = 'wpp-261'; var addthis_config = {"data_track_clickback":true};Share|Here’s a mortgage tip: if you are looking for the best interest rate on a Jumbo Loan consider a 5, 7, or 10 year […]



  2. […] tighter. It always seem like there is always some new credit guideline or restriction coming out to write more A grade mortgage loans. The investors in the secondary mortgage market are still very skittish when it comes to credit […]



  3. […] Self Employed/Business Owners: […]



  4. […] has been scrutinized the most by the financial markets, it’s the sole proprietor business. Self-employed borrowers/sole proprietors used to be able to get stated income loans that would otherwise allow them to provide no income […]



  5. […] fide employees who also have an ownership interest in the company can actually be considered self-employed. For example, if you’re a W-2 wage earner employee and you have an ownership interest in the […]



  6. […] fide employees who also have an ownership interest in the company can actually be considered self-employed. For example, if you’re a W-2 wage earner employee and you also have more than a 25 percent […]



  7. […] Employees who also have an ownership interest in the company can actually be considered self-employed. […]



  8. […] fide employees who also have an ownership interest in the company can actually be considered self-employed. For example, if you’re a W-2 wage earner employee and you also have more than a 25 percent […]



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