Typically, lenders prefer to see a minimum of 2 years of tax returns along with bank statements, how long youve been in that field, year-to-date profit and loss, and other assets which provide them with the income stability and consistency they are looking for.
They will also look at the type of business (S-Corp, LLC, Inc, Partnership, etc.), its financial strength, demand for product/service, and future outlook.
However, income stability and consistency are two factors that stand out with self-employed applicants.
Exceptions do exist.
There is a big difference between a borrower who is self-employed for one year and in the same field of work for many years, compared to the borrower who is self-employed for one year in a new field of work.
- If you were a W2 employee, in the same field of work for 5-7 years, making $50,000, and decided to open your own business less than 2 years ago, you may not need 2 years self-employment history because you’re in the same field and are making similar or more income. In this example, you’ve provided both income stability and consistency with long-term experience in that field.
- If you are a self-employed borrower in a new line of work, you may need to wait until you can provide 2 years of income stability and consistency even if you have the current income to qualify and are making more than you were prior to opening your new business. In this example, you meet income stability but not the consistency requirement because you are in a new line of work and there is little to determine the business’s future survival.
Bottom line: Having a loan officer who is an expert in helping self-employed borrowers can be greatly beneficial. They can look at your overall situation and recommend which type of mortgage and timeframe work best to fit your need.
If you or anyone you know has questions about home loan rates or products, please reach out. I’m always happy to help. Enjoy this month’s issue of YOU Magazine.
Sources: Mortgage Market Guide