I own a small business and want to get a mortgage. Is it true that this is difficult for a self-employed person?
Self-employed people get mortgages all the time, but there is no doubt it is more challenging.
Generally, if you have been in business for at least two years and you can show that you have the income, then you should be able to qualify for a mortgage.
Self-employed people can qualify for conventional and FHA mortgages and even jumbo loans, provided they can put up a higher down payment and have appropriate credit.
The primary issues with self-employment mortgages are business profitability, calculating the applicant's income and verifying the source of funds to close for down payment and closing costs.
This is where self-employed people will have to gather the right documents.
With some exceptions, applicants must also provide two years of full business returns that show steady income, without steep income declines of more than 20 percent.
One to two years of bank statements may be required to help source the funds for down payment and closing costs. If deposits for these items are coming from the business, the lender will do a cash flow analysis to determine if the business can afford to give these funds without affecting daily operations.
Here are the things an experienced loan officer will look at: If you claim self-employment income on your personal tax returns, the loan officer will look at what you filed under Schedule C. Net income (line 31) is the key item. But certain deductions can be added back into your net income.
If you are in a partnership or corporation, the net disbursements you pay yourself will be reported on Schedule E of your personal returns. One key is to show steady income with no decline in business gross revenue.
