Self-Employed and Mortgage Borrowing
There are many perks to being self-employed. You build a business you love, based on your own values and passion. You work hours that you choose. Nobody tells you how to do what you love.
But now you are ready to buy a home, or refinance your mortgage, and being self-employed comes with it’s own challenges.
Whether you own a brick and mortar store or you are a freelancer, it’s not as simple as turning in a w-2 and a few months worth of pay stubs. Proving your income is more complicated than it is for a salaried employee.
Gross Income Vs Net Income
What is a mortgage company going to look at when they are calculating your income?
The first thing they will look at is what your gross income is. That is, how much cash did your business have coming in last year. At this point you are simply totaling receipts. Let’s say your receipts for last year totaled $100,000. Does that mean your income was $100,000? No, it is not that simple.
Your net income is the amount of money you are left with after you pay all of your expenses and claim any equipment depreciation. If you pay employees, purchase materials or pay for the utilities you require to run your business, you are going to write off all of these items and deduct them from your gross income. This is your net income. This is the number the bank needs to determine if you qualify for the mortgage you want to take out.
Ideally, your net income is a positive number, but sometimes it might be zero or even a negative number because your expenses cost more than you brought in.
How Your Mortgage Broker Can Help
There are certain things though, that I can help you add back in to your income. If you bought a car for your business and you determined that the value of the car depreciated $10,000 during that year, we can add that back in to help you qualify.
It’s very important that, as your broker, I see your 2 year average of self-employed income. Whether you have an llc, a C-corp, or even just a schedule C.
I will analyze your entire situation and help you decide what your true self-employed net income is to see what your buying power may be.
For more information on making your home ownership dreams come true, read my post Three Steps to Home Ownership.
Give me a call today for a free consultation (303) 818-0699