One financial benefit of being self-employed – tax write-offs – morphs into an ugly disadvantage when self-employed workers try to get a mortgage. It’s not impossible – but it’s not easy.
Lending standards are tough, and lenders typically want to see two years worth of tax returns, which often don’t accurately reflect take home pay. You have to prepare longer than most borrower’s before buying a home:
- Write off fewer expenses in the two years leading up to purchase of a home.
- Don’t comingle business and personal funds.
- Use a business credit card for business purchases.
- Show year over year increases.
- Choose your years carefully. Lenders will ignore seasonal spikes and valleys by averaging out income over 24 months. But, they don’t like to see a decline in income from one year to the next.
Source: Chris Trafecanty, Mortgage Report, Lighthouse Home Loans, ctrout@fasterhomeloans.com.