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.
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!