Buying a Home When You’re Self-Employed: What You Need to Know
At Liberty Star Mortgage, we understand that being self-employed can make the homebuying process a bit more complex. But with the right preparation, you can secure the mortgage you need. Here’s what you should know if you’re self-employed and looking to buy a home.
Key Documents Your Lender Will Need
As a self-employed borrower, your lender will require the following:
- Two years of tax returns (personal and business): This helps us understand your income stability over time.
- Year-to-date profit and loss statement (P&L): If you’re applying mid-year, we’ll need a P&L statement from January through the most recent month (e.g., January-May if you apply in June).
Pro Tip: Before you meet with your lender, make sure your P&L is up to date. Whether you use QuickBooks or work with an accountant or bookkeeper, having accurate numbers will help speed up the process.
Why Lenders Require a Profit and Loss Statement
We need the P&L to ensure your income is stable or growing. When we review your two years of tax returns and year-to-date P&L, we’re checking for signs of declining income. Ideally, your business should show steady or increasing income. If your earnings have increased from one year to the next, that’s a good sign you’re in a stable position for a mortgage.
What Makes You Self-Employed?
If you own 25% or more of a business, even if you receive a W-2 paycheck or use a payroll service, you’re considered self-employed. Many people don’t realize this and may mistakenly think of themselves as wage earners. This can cause confusion later in the mortgage process.
For example, if you’re receiving regular paychecks and think you’re just an employee, but own 25% or more of the business, the underwriter could flag this during the approval process. That could lead to delays and require a complete restructuring of your loan.
Avoid Delays by Identifying Your Status Early
If the mortgage company doesn’t catch your self-employment status upfront, your file could run into issues in underwriting. This can lead to delays as the loan gets restructured. To avoid these hiccups, it’s important to clarify your employment status from the start.
Ready to Buy a Home?
If you’re self-employed and ready to buy a home, reach out to Collette Horton at Liberty Star Mortgage. She is here to answer all your questions and guide you through the process, helping you secure the right mortgage for your unique situation. Let’s make sure you’re fully prepared!
