If you are self-employed, you already know the benefits that come with making your own decisions and never having to report to a boss. However, there are some disadvantages to generating your own income when it comes to applying for a home loan.
There are two main problems that self-employed borrowers face when qualifying for a mortgage. First, they need to prove their income with tax returns rather than using a ‘stated income’ loan. Many self-employed individuals report expenses on their taxes in order to reduce their tax liability, but this can backfire when they apply for a mortgage.
If this applies to your situation, think about this: What is more important to you, avoiding paying taxes or qualifying for a larger home loan? Your answer should help you to determine the best way to your report your income & expenses for two years leading up to your home purchase.
Another tax-related item to keep in mind is that if you’re more than 25% owner of the company, you’re required to provide the company tax returns as well.
The second problem many self-employed borrowers face is they must be self-employed for at least two years before getting approved for a mortgage. Furthermore, any changes in the company name must have supporting documentation.
Because many potential borrowers in the Las Vegas area work in the service industry receive a large portion of their income from tips (that may or may not be reported to the IRS), my team and I are very experienced in dealing with these types of transactions. If you have any questions about what you qualify for, give us a call at 702.331.8185.