Myths about self-employed individuals include they must earn enough income to buy a home without financing it. You may, however, qualify for traditional residential mortgages such as FHA and VA loans if you show stable income from a business or dividends.
As noted by The Mortgage Reports, lenders need to see at least the last two years of applicants’ income. Employees receive W-2 statements to prove their wages. Without W-2s, self-employed individuals may submit other documents to show a steady cash flow.
Which records could I use to prove my income?
Lenders only consider borrowers’ taxable income for mortgages. A loan officer typically reviews at least two years’ worth of personal and business tax returns. Self-employed income may also consist of stock dividends or at least 25% ownership interest in a business.
You may provide annual statements proving your share of ownership in a partnership or S-corporation. If you earn a living as a sole proprietor or 1099 contract “gig” worker, you could show a loan officer proof of your “ongoing” sources of income. You may also submit records of taxable government benefits.
How may I show that I could afford a mortgage?
Self-employed individuals may obtain mortgages with a steady income and good credit. Submitting a balance sheet and a profit and loss statement could show that you have a stable source of business income. Whether from side jobs or seasonal work, lenders may approve a loan when you have income sources lasting for at least another three years.
Mortgage applicants may show steady income from a business or freelance work to qualify for traditional home loans. With stable earnings and a debt-to-income ratio under 45%, a lender may accommodate a borrower’s residential financing needs.