Easier Loan Qualifying for Self-Employed Homebuyers

Photo Credit: www.changingthetide.com
Photo Credit: www.changingthetide.com

The days of “Stated Income” loans for self-employed homebuyers are a thing of the past. Government rules now require borrowers to prove their ability to repay loans by way of an income source.


This can make things very difficult for self-employed borrowers who take heavy deductions on their tax returns, resulting in lower net business profits used for qualifying income.


However, there are common-sense lenders who understand certain business deductions don’t really affect a self-employed buyer’s “bottom line”. Among the most common deduction of this type are those for business mileage driven and use of home offices.


So it’s important for self-employed homebuyers to know they have many options when it comes to qualifying. There are lenders who can qualify self-employed borrowers based on their income prior to taking the above two deductions.


Sample Scenario
You are self-employed and have $76,000 in gross business income. After deducting $40,000 in business expenses, your tax return shows a net business income of $36,000 ($3,000 per month).

Of the above $40,000 in business expenses, $12,000 are from mileage and home office deductions.
With a lender that will add these two deductions back to the net business income number, the $12,000 in mileage and home office deductions won’t affect your income qualifications. After making this $12,000 adjustment, you would be given credit for an income of $48,000 ($4,000 per month).

So while many lenders would qualify you using an income of $3,000/month, there are lenders that would use an income of $4,000/month. That’s 33% more qualifying income!


Feel free to contact us if you have questions regarding self-employed buyer qualifying. We have access to lenders who can help!


Chad Peshke is an experienced Financial Services Provider specializing in tax preparation, home loans and personal finance coaching. He holds a Bachelors Degree in Economics from the University of California in Santa Barbara and is licensed in tax preparation, loan origination, real estate and insurance. View all posts

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