A Home loan designed for the self-employed borrower

Not having to use tax returns to qualify for a home loan can be a game-changer for many small business owners or self-employed home buyers. While many self-employed borrowers will qualify based on their tax return filings, many do not qualify due to the many write-offs that were taken or possibly having one of their last two tax years being a lower-earning year.    

The Potential Problems with using Tax Returns to Qualify:  

Borrowers who have been in business less than 5 years must use the last two years' tax returns to qualify. The lender looks at the AGI from the last two previous tax years and averages out the income. The problem with this arises when one of those years your AGI was much lower than the other. In the example below, you would have a much lower approval amount than your current income would typically allow. This can be the difference between qualifying for your dream home and not qualifying.   

 Example:  Tax year 1: AGI $25,000  + Tax year 2: AGI $100,000 = $62,500 in qualified income.   

 Another common issue arises when business owners write off all of their allowable deductions and expenses and leave themselves with little or even no taxable income reporting.  This is very common with new and even established self-employed borrowers. I have had many years in my businesses where we did very well but because of our allowable deductions and business purchases we reported a loss. This would result in the borrower not having any qualified income.  

  The Solution:  In both of the examples above the solution would be for the borrower to use a home loan designed specifically for small business owners and self-employed borrowers. The 12 or 24-month business or personal bank statement loan allows the borrower to use the deposits into their bank account as qualified income and not their tax returns.   

 Example: Borrower has $15,000 on average a month deposited into the business bank account over 12 months, In this example, the borrower would have $15,000 a month in qualified income. 

   Can you see how this is a game-changer for the self-employed home buyer or small business owner wanting to qualify now for their dream home?