Self-Employed and Buying a Home? Here Is What You Need to Know!
Self-employed people can absolutely get approved for mortgages and purchase real estate. But the process can be a bit more challenging—and if you are self-employed, it is important to know what to expect when you apply for a mortgage.
So what, exactly, should you expect?
A recent article from realtor.com outlined things self-employed individuals need to know before they start shopping for a home, including:
You will need to have been self-employed for at least two years.
Most lenders will want you to submit documentation that verifies the past two years of your employment. That means, if you’re self-employed, you will need to have been working for yourself for at least two years. Be prepared to show tax returns going back two years in order to verify your self-employed status, and the amount of income you gross and net from your work.
Tax breaks can impact your borrowing potential.
One benefit of being self-employed is that you can write off certain business expenses, which lowers your taxable income (and lowers your tax bill). But while paying fewer taxes is great for your bank account, it’s not always great for buying a house. When determining whether to approve your mortgage (and how much to approve), your lender will look at your net income (the total after any tax deductions), not your gross income (the total amount you earned). This can prevent you from securing a mortgage at all, or securing a mortgage for the amount you need to buy your home. So if you’re planning on buying a home in the near future, consider how many expenses you want to deduct.
The process can take longer.
In theory, the approval process for a self-employed person should take the same amount of time as a traditionally employed person. But if you’ve had any recent changes in your business—or you have income from a variety of sources—it may take longer to collect all the necessary documentation and process your mortgage application.
Ready to purchase your dream home and are self-employed? We can help and would be honored to assist you. Contact us to get started!