Back to Results
Please enter a valid email address.
Stating a discriminatory preference in an advertisement for housing is illegal. If you think this content is discriminatory or otherwise inappropriate and feel it should be removed from Zillow, please let us know by completing the information above.
We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.
Self-employed borrower –
The primary problem for the self-employed employed borrower is that nearly all mortgage lenders require that borrowers be self-employed for at least two full years. For the lender, this means showing the last two years of tax returns showing two full years of self-employment income. Since most people do not start their business exactly on January 1, what this really means is that you need to be self-employed for two January to December years in order to meet the two year test.
Under normal Fannie Mae underwriting standards, a borrower is considered self-employed if he or she owns more than 25% of a business from which income is derived. Any lower percentage ownership and a borrower can simply be considered employed by the firm.
Self-employed borrowers will have to provide the following: 1) two years of business tax returns; 2) two years of personal tax returns; 3) a letter from a CPA confirming two years of self-employment; and 4) a year to date profit and loss statement. If there are any problems with this information, then additional documentation will be required, such as letters from accountants, business bank statements or other financial records.
Underwriters average the net income to the business owner over the past two years to obtain an estimate of total income. For example, a borrower with net income of $50,000 in 2008 and $100,000 in 2009 will only be credited with an average of $75,000 in income during 2009, even if 2009 is on track to equal 2008. Some expenses can be added to net income such as depreciation if they are non-cash expenditures. If the averaged income is sufficient to qualify, then the borrower will be approved. Another area where borrowers can add back income is for auto expense. If your business pays your car loan, then you can exclude that car debt from your personal debts as long as you can show that the business has paid the loan for the past twelve months (canceled checks required).
Many self-employed borrowers do not show sufficient averaged tax return income to qualify for the loan they need. For example, if a business owner suffered a difficult year in 2008, but in all years before and after income was significantly higher, then the averaging method of analyzing income would unfairly deny the borrower a standard loan.
Other factors that may affect the loan are pass through losses from various business schedules to your personal tax return, like a K-1 or Schedule E. Once again, these items are deducted from reported income and will reduce the income used to qualify for the loan. Non-cash items, such as depreciation and amortization are added back to income. Of course if there are profits that are passed through, they will increase the borrower's income.
Rental property - Income or loss must be claimed on your tax returns for twelve months to be considered.
Assets –Six months reserves will be required for all mortgages
Options – Spouse may be able to qualify on her own?
Please enter text in the "Enter the text to display" field.
Please enter text in the "Enter URL" field.
Please enter a valid URL.
Please insert a video embed only
Zillow Advice depends on each member to keep it a safe, fun, and positive place. If you see abuse, flag it. More on our Good Neighbor Policy.
For Sale: $275,000
For Sale: $299,000
For Sale: $400,000