It goes without saying getting mortgage loan financing could be a little bit of an arduous process for some folks particularly those who have challenges showing income are in the self-employed category. The stated income loans and the loans that were created for self-employed borrowers unfortunately are very far and few these days and in order to get mortgage financing most typically, have to pay the piper. Here’s what you need to know if your self-employed and you have income challenges with regards to how you report your income…
First and foremost the best thing you should do is be 100% truthful and honest with regards to showing your income. If you generated a big profit in your business, show the big profit pay the piper and pay the associated taxes. People get into trouble when they have the ability to write off expenses. Just because you are allowed to write off expenses doesn’t necessarily mean that you should. People who are W2 employees don’t have that luxury and they don’t do that as they don’t have that option as taxes are taken out of their paycheck while self-employed people have that flexibility.
The cost of that flexibility in not showing expenses and writing off all of your income is that getting mortgage loan financing can be particularly problematic. The reality of it is that if your self-employed most lenders typically need 2 years of tax returns to get you qualified. If you’ve been specifically filing self-employed for the most recent last 5 years. Mortgage companies could typically use when the year of income tax returns.
If you are not self-employed and you are a W2 employee and don’t have a rental property, then you don’t need to provide tax returns for a purchase or refinance loan. If you are not required to file tax returns based on the amount of income you earn per year or you specifically have tax-free income once again you also have that ability. If you are a W2 employee however and you are required to file tax returns and you just simply choose not to don’t be surprised if you can’t get mortgage financing. Lenders are not willing to put their necks out to help someone who is circumnavigating the system.
The lender has a buy-back risk on that loan if something was not done correctly. The best you can possibly do is show all of the income, pay all the associated taxes with that income, and show enough income to be able to better yourself financially by buying a house or refinancing the house. This in the long run will help support or create wealth for you and your family through real estate by showing the appropriate income and paying the appropriate taxes in relation to the revenue you earned.
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