Mortgage Advice

Getting a Mortgage When You’re Self-Employed

July 16, 2015

There are a lot of perks that come with owning a business, including the ability to set your own hours, be your own boss and turn your passions into profit. Not to mention the tax benefits that come with being able write-off various business-related expenses. And, all the hard work and sweat equity you put into your business can pay dividends toward building a strong financial future.

While intuition may lead one to believe that getting a mortgage is easier for self-employed individuals due to the financial assets they have at their disposal, it can actually be more complex. That’s because the documents required to get a mortgage go well beyond collecting W-2’s, bank statements and pay stubs. Borrowers who have stake a in a business, an elaborate investment portfolio or other income-generating interests often have elaborate tax returns that raise more questions than answers.

Because business owners have the ability to take advantage of various tax deductions and write-offs, their returns don’t accurately reflect their true income and can actually deflate their take-home pay—at least on paper. This can make it challenging for underwriters to accurately determine their income. If their return is not reviewed carefully, the result could lower their purchasing power or interfere with their ability to qualify for a loan.

That’s why it pays to partner with a mortgage lender who understands the unique financial needs of self-employed homebuyers and can work diligently to move their application through the underwriting process in an efficient manner.

Here at Ross, we’ve developed a solution that enables us to effortlessly extract key data from complex tax returns. Not only have we drastically reduced the time it takes to verify self-employed income, we can easily identify certain deductions that can be applied to the borrower’s income, thus increasing the loan amount they can qualify for.

You can rest assured we’ll do everything we can to make sure you have a positive home buying experience. To help you prepare for the process, we’ve put together a few quick tips to follow for getting a mortgage when you’re self-employed:

  1. Plan ahead. Gather all your financial documents, including two consecutive years of personal tax returns and business tax returns, complete with all schedules, K-1’s, etc.
  2. Demonstrate business growth. You’ll also want to provide a profit/loss statement to demonstrate your business is steadily growing and trending upward in terms of profit.
  3. Be conscious of how much you’re writing off in business expenses. While writing off expenses can help lower your tax liability, it can also lower your income and could make it more difficult to qualify for mortgage financing.
  4. Keep your personal and business finances separate. Doing this will help make the review process much easier and avoid any confusion between what constitutes personal assets and business assets.
  5. Come to the table with a larger down payment. If you have the means to put down a larger down payment, this can be another way to increase the odds of being approved.
  6. Make sure you choose a lender that has experience evaluating tax returns.

If you follow the tips listed above, you’ll set yourself up for a smooth experience when it comes time to apply for a mortgage loan.

Whether you’re a self-employed homebuyer looking for a second opinion or an agent representing their needs, we’re here to answer your questions. Send us a message! We’d be happy to connect you with one of our expert loan officers.