Self-employed people get a lot of great perks. You’re your own boss! You can work in your pajamas! Take your lunch when you want! However, self-employed people also lack a lot of things that people working for a company lack. There is no tax structure for you, meaning that you have to pay your payroll taxes that your employer pays on your own. You also often have trouble with determining your compensation and proving what you make. This can be trouble when you are buying a home, as we need to know your income! Well, you can buy a home when you are self-employed.
Many of the 9 million self-employed people in the United States earn a good living but have problems qualifying for mortgages. While a borrower typically has to provide two years of proof of revenue, this doesn’t always accurately show what take home pay really is when you’re self-employed. Self-employed for a mortgage may mean something different than self-employed for the IRS, and how you balance your books for tax purposes can hurt you when applying for a mortgage.
Tax deductions, from retirement plans to business meals and entertainment to interest on business loans or business credit card interest, lower your tax burden, but make it seem like you’re making a smaller income. However, mortgage companies see your paycheck after tax deductions. This ends up showing your income as below your actual take-home pay, and can lower the amount that you can get in your mortgage, or cause you to be rejected entirely.
If you’re self-employed, there are ways to combat this. You can write off less in the two years before you apply. Make sure that your business and your personal accounts aren’t shared. You can open business credit cards and accounts to help combat this, as those debts can be counted against the business, and not your bottom line.
Also, make sure that you’re buying on a high swing. Seasonal swings are ignorable by mortgage lenders, but huge year to year spikes make us nervous. We want you to be able to make your payments every month, and making different amounts yearly can make you look less reliable. The best way to combat this is to apply after a couple of steady years, showing that your income won’t dip and jump.
Call The Home Loan Expert Team in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515, Nashville at (615) 810-8555 or Birmingham, AL at (205)721-7656. You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?
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