If you own a business or are self-employed, your requirements to qualify for a loan are different than for someone who is traditionally employed. The stability of your business and personal expenses are key considerations for Oklahoma home loan approval.
Prequalifying / Pre-Approval
If you are self-employed, the lender will use your tax returns — business and personal — from the past two years to evaluate and average your income.
Before qualifying for a loan, most borrowers must be self-employed for at least two years. In some cases, such as when a borrower has excellent credit or is able to make a substantial down payment, you may not need to wait as long. However, the general rule of thumb is for lenders to use two years of tax returns.
If you are a salaried, W2 employee, lenders can use your adjusted gross income (AGI). However, loan requirements are more strict for those who are self-employed. Self-employed borrowers often “write-off” expenses to reduce their tax burden. Talk to your tax advisor and home lender before writing off expenses because it can lower your net income, which may make it harder to qualify for a home loan.
The Loan Process
Other than requiring two years of tax returns, the loan process and terms will be the same for self-employed borrowers as they are for any home loan candidate. Like all prospective borrowers, you will need to meet minimum credit score and down payment requirements.
Demonstrating consistent income is typically the biggest hurdle that self-employed borrowers face. Also, the less debt you have, the better.
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If your tax returns don’t provide adequate evidence of your income, you still may be able to quality for a loan in an alternate way. Meet with your lender to discuss alternative loan programs such as:
- Bank statement program - Self-employed borrowers can provide 12 months of bank statements that show regular deposits. Your lender can use those deposits to determine your income rather than using your tax returns.
- Assets as income - If a borrower has a lot of assets (cash in the bank, 401k, stocks, etc.), then we can calculate “income” using those assets. This method allows us to estimate income and avoid using tax returns.
Your mortgage lender can serve as a “coach” to discuss your options for getting a home loan. While the lender can’t give specific financial advice and every situation is different, he or she can walk you through each step.
Lincoln Lending (NMLS 398026) has an experienced lending team that can talk with you about your plans and guide you through the home loan process. We are glad to offer a no-cost, no-obligation meeting to review your situation and your available options. To schedule a meeting, please call (405) 799-5363 or email us at Info@LincolnOK.com.
