Self Employed Buyer Guide
Yes. Being self employed does not prevent you from buying a home in Reno. The real question is how your income will be documented and calculated for the mortgage.
What determines which mortgage a self employed buyer can use?
When I work with a self employed borrower, I start by looking at how long you have been in business, how your business is structured, what your tax returns show, and how money actually flows through the business. From there, I can determine which mortgage programs are worth considering. For some borrowers, a conventional mortgage works well. For others, a bank statement mortgage or another alternative income documentation program may make more sense. The goal is to understand your income correctly before choosing the loan.
How Is Self Employed Income Calculated for a Mortgage?
For a conventional mortgage, your qualifying income is not simply the amount of money your business brings in.
The lender generally reviews your tax returns and performs a cash flow analysis to determine the income that is stable, recurring, and reasonably expected to continue.
Fannie Mae generally looks for a two year history of self employment, although its current guidelines allow some borrowers with a shorter history to be considered. In certain situations, a borrower with at least 12 months of self employment income may qualify when there is documented previous income from the same field or a similar occupation.
What If I Have Been Self Employed for Several Years?
If you have an established business and your tax returns show enough qualifying income, the conventional mortgage process may be relatively straightforward.
Depending on the circumstances, the lender may review personal tax returns, business tax returns, Schedule C income, K 1 income, corporate returns, or other documentation related to the business.
There are also situations where Fannie Mae permits reduced tax return documentation for borrowers with a longer established history in the same business. The exact documentation depends on your ownership, business structure, income sources, and underwriting findings.
This is why I prefer to review the income before assuming which documents will be required.
What If My Tax Returns Do Not Show Enough Income?
This is where many self employed borrowers run into problems.
A business owner may have strong cash flow while also taking legitimate business deductions that reduce taxable income. That can be good for tax purposes, but it can also reduce the income available to qualify for a conventional mortgage.
That does not automatically mean you cannot buy a home.
It means we need to look at whether another type of mortgage allows your income to be documented differently.
How Does a Bank Statement Mortgage Work?
A bank statement mortgage can be an option for some self employed borrowers whose tax returns do not produce enough qualifying income.
Instead of using traditional tax return income calculations, these programs may use deposits shown on personal or business bank statements to help determine qualifying income.
Some lenders currently offer programs using 12 or 24 months of bank statements. The exact calculation varies by lender and program.
With business bank statements, the lender generally does not simply treat every dollar deposited into the account as personal qualifying income. The analysis may consider business expenses, transfers between accounts, your percentage of business ownership, the type of business you operate, and whether deposits are consistent with normal business activity.
That calculation can make a significant difference.
Two borrowers with the same amount of deposits could end up with very different qualifying income depending on their businesses and the lender guidelines being used.
Do I Need Two Years of Tax Returns?
Not always.
For many conventional self employed borrowers, tax returns remain an important part of the income analysis. Fannie Mae generally requires a two year history, but its guidelines provide exceptions depending on the length of time the business has existed, your ownership history, and the documentation available.
Bank statement mortgage programs can be different. Some current programs allow qualifying income to be documented using 12 or 24 months of personal or business bank statements instead of traditional tax returns.
The important point is not to assume that one documentation method applies to every self employed borrower.
What If I Have a More Complicated Income Situation?
Self employed income can become complicated quickly.
You might own more than one business. You may receive income from a partnership or corporation. Your income could vary from year to year. You might have large business deductions, multiple bank accounts, commission income, rental income, or other sources of income in addition to your business.
You do not need to figure out the underwriting calculations yourself.
My job is to ask the questions an underwriter is likely to ask before we submit the mortgage application.
I want to understand your business history, income, credit, debts, assets, down payment, and overall financial picture before recommending a loan program.
That can save a lot of frustration later in the process.
Should I Use a Conventional or Bank Statement Mortgage?
That depends on your numbers.
If your tax returns support the income you need to qualify, a conventional mortgage may be the first place to look.
If your business has strong deposits but your taxable income is substantially lower because of business expenses and deductions, it may be worth comparing a bank statement mortgage with your conventional options.
I can also compare the interest rate, loan costs, down payment requirements, income documentation, and other underwriting requirements so you can see the differences clearly.
The right mortgage is not determined simply by whether you are self employed. It depends on how your particular income fits the available guidelines.
Buying a Home in Reno When You Are Self Employed
If you are self employed and considering buying a home in Reno or Northern Nevada, do not assume your tax returns tell the entire mortgage story.
I would rather review the numbers early and determine what is realistic before you start making offers on homes.
Self employed and thinking about buying?
The best first step is to schedule a call with me.
I can review how your income is structured, explain the mortgage options that may be available, and help you understand what it will take to qualify. If you are ready to provide your financial information, you can also start your mortgage application.
Helpful official resources
Educational information only. Mortgage programs, rates, costs, documentation, and eligibility requirements can change. Bank statement and other alternative documentation programs still require verification of ability to repay and other underwriting. This is not tax advice, a commitment to lend, or a guarantee of approval. Equal Housing Lender. Kevin Edwards NMLS #1269816 | DRE #53061. Arbor Financial Group CORP NMLS #23669.
