The quick answer is yes, absolutely! We work with plenty of clients who are self-employed. Here are some quick rules and guides to help you see how it works:
- History Requirement: Two-year history of the company/self-employment. Some exceptions are made for less than two years, but no les than one year history is required.
- Income Requirement: if your income is within the same range or higher than the previous year, we can use it! If the income is decreasing significantly over time, this may be an issue. In fluctuating industries (like real estate or the arts), more understanding is given as some years are extremely good, then others quiet down.
- How is income calculated? We utilize your most recent two years of personal & corporate (if applicable) tax returns. There will be a review of the following, as applicable: your W2 (issued by your company), Schedule C, or K1 earnings from your business. They will be added together for each year, then the total for both years will be divided by 24 months to determine your monthly income. Note, net earnings are used in this case (K1 or Schedule C), however, we would use your full W2 earnings from your company.
One trick of the trade to consider, you can use only your most recent tax year (1 year instead of 2) for qualifying, if your business has been in existence for 5 years or more. This is helpful in getting a higher monthly income for qualifying if you recently had a much better year. This is only true for conventional financing, however, the Jumbo lending programs will still require a two year average.
We understand that each business is unique, and income can be hard to document at times, but the general rule of thumb is, if you pay tax on it, we can use it to qualify you! If you fall outside the norm of underwriting, we may still be able to use the income, just discuss the nuances with your loan consultant, we may still be able to use the earnings.
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