Self-Employed Borrowers


Self- Employed Borrowers

While independent contractors enjoy many benefits that come with self-employment – including opportunities for taking tax deductions against their income – they can worry they’ll face unique challenges when it comes to financing a home. It is important to be aware of all the variables that can impact the qualifying process.

Self-employed borrowers should take every opportunity to make their financial situation look as appealing to potential lenders as possible. This includes the following financial paperwork:

  • Two of your most recent tax returns.
  • Recent paycheck stubs (12 - 18 months).
  • List of debts
  • List of assets
  • Form 4506-T (allows lenders to access tax information)

All of this information can be utilized during the approval process. A self-employed borrower needs to begin to prepare these documents and their contents a few years in advanced.

Self Employed Loan

Preparing to Qualify for a Home

Demonstrating to lenders that you are capable of living with a low debt to income ratio increases the quality of the loan that you are qualified for. Being a business owner allows you to have more available deductions to write off on your taxes. This decreases your tax burden by decreasing the amount of taxable income that you are claiming. If you are aware that you will be in the market to purchase a home, limiting the deductions you claim on your taxes will increase your income which in-turn will make you a better applicant.

There are a few things to note. Deductions that include depreciation and depletion of business related assets can be can be returned to your income during the calculation. So if you want to limit your deductions, DO NOT limit depreciation write offs. Also, by discussing irregular business purchases that occurred in previous years but will not be an expense in the future will give the lender a better understanding of your financial capabilities. Ultimately the lender will consider your adjusted income and not just your taxable income, so it is beneficial to communicate your unique situation.

Budgeting for a Mortgage

Budget a Home Mortgage

Budgeting for a new home is more than meets the eye. There are many hidden fees that add up on monthly expenses quickly. Choosing the right home is the other half of the battle. When choosing a home, it is very important to think of every expense. Here is a quick list of the major costs associated with a new home:

  • Monthly Mortgage Payment
  • Homeowners Insurance
  • Home Owner Association Fees
  • Property Taxes (visit city or county websites to find your property tax rate)
  • Any renovations that the property will require

Home Owner Association or HOA fees are the most commonly overlooked. HOA fees can easily increase the amount you pay monthly by 15%. Keeping a mindful approach while budgeting for your new home will ensure that you live comfortably and with limited financial stress.

Qualifying for a Mortgage in [Dyanimic1]
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