Starting your own business was a huge step, and now that the dust has settled, you’re ready to buy a home. However, it can feel like all the mortgage products and advice out there are geared toward people working for an employer.
It’s daunting enough to venture into self-employment, and buying a home or refinancing while doing so might seem like completely unknown territory. But the good news is, many self-employed people own homes, and there are plenty of mortgage options available for you!
How Much Can I Borrow for a Mortgage While Self-Employed?
When buying a home, an affordability calculator can help estimate how much you can afford. Your credit score is also a crucial factor in determining the size of your loan. With good credit and a solid income from your business, you can expect mortgage terms similar to those of formally employed individuals.
The primary challenge is calculating your self-employed income and providing the necessary proof and paperwork to lenders.
How Do I Calculate Self-Employed Income for a Mortgage?
Lenders typically use two years of tax returns to average your adjusted gross income. This figure will help them assess your finances. Just like employees with W-2s, lenders need to evaluate your ability to repay the loan, which includes reviewing the strength and stability of your business.
While it’s not always perfectly fair, self-employed individuals are often seen as a higher risk. Here’s other information you’ll likely need to provide:
- Year-to-date financials
- Accounting for items like depreciation, amortization, interest, and taxes
The more information you can provide to demonstrate the strength of your business and income, the easier it will be for lenders to approve your loan. A bookkeeper can compile your financial details, but it’s important to have your CPA review them as well.
Always Keep Your CPA in the Know
Getting your documents in order can be complex, so working closely with a CPA will be invaluable. Ensure your CPA has experience working with self-employed individuals and understands your unique needs.
“Your CPA should know about your goals when they are working closely with you,” says Kelli Loo, CPA and financial advisor for small business owners. A good CPA will consider the full picture of your business and personal goals and help you navigate the complexities, such as adjusting for tax deductions that could make your income appear smaller.
Can I Refinance My Mortgage When I’m Self-Employed?
Yes! You’re not limited to just purchasing a home. Self-employed individuals can refinance their mortgages just like anyone else. The same principles apply: gather as much documentation as possible and ensure you present the full extent of your income.
Before talking to a loan officer, check out a refinance calculator to get an idea of potential numbers.
Talk with a Private Mortgage Lender for Self-Employed Home Loans
The mortgage process can be daunting when you’re self-employed, but at DC Lending, we specialize in offering personalized solutions. As a family-run firm, we’ll take the time to find the best match for your needs—whether it’s a conventional loan, FHA loan, or another mortgage type.
Fill out a quick quote online, and one of our loan officers will get back to you within 24 hours to discuss your options.
Bottom Line: Homeownership and refinancing are within reach, even for self-employed individuals, with the right planning and guidance!