Historically, qualifying for a mortgage while self-employed has been challenging. More and more people are being entrepreneurs though. With so many self-employed potential homebuyers in the market, major changes have improved the odds of qualifying for a mortgage while self-employed.
Self-employed business owners used to have to show their income for two years by providing their tax returns. That left them with a tough decision. When the year is almost over and profits are shown, should they keep the money for their personal use or put it back into the business? The smart business owner would put it into the business to prepare for the future and avoid paying higher taxes. The potential homebuyer used to have to just keep the money for their own personal use at least two years in a row. Otherwise, their debt to income issue can look a little too tight for the lender’s liking.
It’s frustrating having to choose between spending the money investing in your personal business upgrades and buying a home. A smart business owner will put as much of the annual profits back into the business as they can possibly afford. They’ll buy a new point of sale, have the building repainted, stock up on supplies, etc. They don’t just keep the extra money that they don’t need and spend it on themselves. Business owners often learn to live frugally as an investment in their future and the future of the business.
Mortgage companies have always wanted to make sure that the home buyer has access to enough extra money and never really made space for the self-employed workers’ specific situation. That has changed now. Blame it on the surge of Millennial entrepreneurs, but now many lenders are offering a different option for proving income.
Now, there are loans that utilize bank statement deposits to prove income. So, instead of showing income with a tax return, these bank statement loans are available. These are a far more accurate way to show a person’s available income. These options allow the lender to look at two years of deposits instead of two years of net income. This is a better way to show what kind of income is actually available to the home buyer throughout the year.
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