Did you Know? Qualifying Self-Employed Borrowers
“I’m not
self-employed; I own 100% of a corporation.” This statement came from a
borrower who didn’t want to provide his business tax returns to our team for
mortgage approval.
This is why
borrowers cannot tell if they do or do not qualify for a mortgage using online
tools.
This is why lenders
must conduct a thorough interview of every borrower.
A borrower can own a
corporation and nothing on the documentation will indicate that they are
self-employed based on the name or the address of the business. However,
because there are so many behind the scenes double checks that occur throughout
the mortgage process self-employment will be determined and then additional
documentation and validation of data will be required.
A consumer is
considered self-employed if their income is derived from a Schedule C business
or if they have 25% or more ownership in a corporation, limited liability
corporation, S corporation or partnership.
If the borrower owns
a Schedule C business, two years of personal tax returns will be required. If
income is increasing over the two years we will average the income; if latest
year is lower we will qualify using the latest year’s income. We may require a
profit and loss statement in rare cases to strengthen an application or to help
to identify income trends.
For S Corp, LLC,
corporation or partnerships, we will require two years of personal tax returns
along with two years of business returns along with K1’s if applicable and
W2’s. Underwriters are looking for stable or improving income and paying
special attention to “loans to corporation” to be sure that the corporation is
not debt dependent for survival.
With the
introduction of the qualified mortgage and the ability to repay rules coming in January it is more
important than ever to be certain that your borrowers are fully and properly
pre-approved before you begin the real estate search.
If you are a self employed individual and would like to see if you qualify for a home loan, please give me a call at 314-744-7806, or visit my website
If you need any further explanation
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