Today’s guest post is courtesy of Brandon Frye, mortgage consultant at Wells Fargo. Brandon is licensed in all 50 states and D.C., and works with homebuyers and homeowners to find rates and programs that suit their purchase or refinance needs. Below, Brandon will discuss 5 things that self-employed buyers should know about getting a home loan.
- Have a 2 year history of your federal tax returns ready, including any all 1099s that you may receive. Unlike someone who receives a base salary, people who are self-employed don’t have the luxury of knowing exactly how much income they will earn year to year. This is why tax returns are always required for someone who is self-employed. These documents help your lender see how your business has performed in the 2 most recent years and they also help to estimate what your income will be moving forward. Fannie Mae has an income calculation method all lenders should be using on conforming loans, so your income should be the same regardless of what lender you choose.
- Purchasing or refinancing at the beginning of the year can reduce the amount of paperwork you need. Most people who are self-employed don’t receive year-to-date paystubs like someone who is salaried. This makes it difficult to see exactly what your income has been since your last tax return was filed. During the first quarter of any year, your tax return from the previous year is still current enough to use for your income. This eliminates any problems trying to document what your income has been since your last tax return.
- If you purchase or refinance after the 2nd quarter of the year, you may be required to provide a year-to-date Profit & Loss statement and Balance Sheet for your business. These documents will show what your year-to-date income is. They are usually required when there has been a reasonable gap since your last filed tax return. They are used to show that your income is still on track with your 2 previous years’ tax returns. They can both be easily generated by Quickbooks and similar accounting software. If you use a CPA it may require a little more time and a fee for preparing them. These documents are the equivalent of a year to date paystub for someone who is salaried.
- If you own more than 25% of a business, be prepared to provide all schedules and pages of that business’s tax return as well. This is something that is required when you receive a K-1 from a business and it shows that you own at least 25% of that company. If you own less than 25% then they are typically not required.
- Being well prepared and having this information ready can save you time and get your loan closed much quicker. With all mortgages, providing your documents quickly can help you close quickly. By knowing what you need and having it ready to provide, you can be a step ahead of other buyers in a competitive market . You can also reduce the amount of time needed to refinance and take advantage of your new mortgage even sooner.
To contact Brandon directly, call or email (843) 267-1054 or firstname.lastname@example.org, or visit his website at https://www.wfhm.com/loans/brandon-frye/about.page.
Posted on January 7, 2016 at 7:35 am by Palmer Harned
This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.