Borrowing Information for the Self-Employed

 In Real Estate Articles

The workforce has changed so much in the past several decades, especially with all of the advancements in technology and internet usability. Many people in today’s society have their own businesses or consider themselves self-employed in some way. You might be wondering how someone with varying monthly income would be able to qualify for a mortgage, but it happens fairly often. There’s a method which lenders use to determine how much of a mortgage a self-employed borrower may qualify for.

To come up with a gross monthly income estimate, a lender will look at the borrower’s tax returns for the past two years, with both business and personal returns included. To supplement this information, the lender may also request profit and loss statements to gauge the overall success of the business a self-employed applicant runs. These two pieces of information are studied, and the sums are added together. The average of the sum is the number which lenders use to determine a qualifying amount.

Taking a look at your bank account statement histories may also be a step the lender has to take in order to track money which the applicant has received from their business. In most cases, if not all, a lender will require a self-employed applicant to have been in their line of work for at least two years.

A self-employed borrower can expect to be examined more stringently by the lender than a traditional applicant. This is due to dramatic swings in income which can happen throughout the year for self-employed business people. The lender wants to see that your business is stable, and income throughout each year is relatively close in number. Lenders will want to be sure there aren’t any issues which would lead them to believe that the business may not be viable in the near-future.

Qualifying for a mortgage can be a stressful and involved process for any applicant, but if you’re self-employed, it’s a good idea to prepare yourself for the process of validating your business so you’re likely to be approved to borrow. Your loan officer will be able to tell you exactly what documentation you have to provide during the application process, and if you’re well-prepared, you can take a lot of the hassle off your shoulders.

Let my team at Keystone Realtors® meet all your real estate needs. I have over 16 years of experience in buying and selling in the Santa Clara and San Mateo County areas, specializing in the high-end, luxury market. Visit our website at listings and information. You can contact me at 650-924-2544, or email at [email protected]