Are you self-employed and having a tough time getting a mortgage?

Are you self-employed and having a tough time getting a mortgage? Here’s what you need to know…

When it comes to being self-employed one of the biggest challenges that you’re going to have as an entrepreneur is reporting income. The more income you show the more taxes you pay, and the more taxes you pay the less you have for savings and for other projects like purchasing a home. A great alternative to purchasing a home is a nontraditional loan often called a non-qualified mortgage which is a mortgage that goes beyond the guidelines set forth by Fannie Mae and Freddie Mac for most residential mortgage loans.
For example, a bank statement loan that averages your bank statements over the most recent 12 months or the most recent last 24 months could be a positive alternative.

If you buy now and show income via your self-employment venture you’re going to pay more in taxes however your interest rate generally will be better, and your down payment will be better far more favorable think less down as little as 5% down for a conventional mortgage or even 3% down if you’re a first time home buyer. The e alternative is a bank statement program wherein you save money for the IRS as it relates to showing less income by taking deductions which you can do as a self-employed individual at the expense of a possibly higher interest rate and more of a down payment. In other words, what you save in taxes as a result of taking more deductions you end up having to repay via a larger down payment and impossibly a higher interest rate on a bank statement mortgage loan program.

Options include:

  • bank statement loan
  • DSCR loan for rental property
  • Using 1 year income tax returns

For example, let’s say in the last few years your income was a little bit low in the course of your business and you’ve been filing as self-employed for the most recent last 5 years, well based on that, you can use one-year income tax returns to qualify. Put another way if 2022 was a good year, but the previous years showed lower. The lender would only need your most recent 2022 tax return assuming you’re going to buy a home in 2023.

There is no such thing as a perfect scenario when you’re self-employed and you take deductions you are eligible for you in the course of your business. The cost of this is a higher rate and larger down payment vs a time expense and report higher profits within your business.  If you’re thinking about what it might take to buy a home and you’re self-employed and you want more information about creating a long-term affordability plan start today with a complimentary mortgage rate quote.


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