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I'm Self Employed, Can I Buy A Home?

By
Mortgage and Lending with D A Griffin Financial.LLC NMLS 6380

 

I'm Self Employed, Can I Buy A Home?

 

I had a call today from a self employed home buyer with questions about buying a home. He had called his banking partner and was told he needed two years of self employed income to qualify for a home loan and he should call a mortgage broker. And they are right, mostly.

I say mostly right because as a mortgage broker there are lenders who have alternative ways of closing home loans for the self employed. The problem is a big down payment is required and the higher the credit score the better. Most first time home buyers do not also have a lot of savings; those that do may not want to spend it on a down payment or like the interest rate involved.

So, in a nutshell, yes a self employed person with less than two years in that endeavor CAN buy a home it is just not practical usually.

I often have self employed individuals tell me their income based on gross receipts. For a self employed person it is best to consider income the amount on which you actually pay taxes. There may be some adjustments but this is a gauge of what a lender might consider actual income.  A practical step for someone with a home in his future would be to perhaps not write off all the expenses to avoid taxes but instead have higher reportable income. For instance if gross receipts are $60,000 but $40,000 is expended then the income for the year is $20,000. You can't buy much house with that. 

If someone self employed finds himself in a position of wanting to buy a home with conforming financing he does need to have a two year history and do some prep work ahead of time to be successful. Maybe don't take all the expenses available. Begin with the end in mind.

 

 

 

Comments (3)

Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Dora,

I would say most Realtors fall into this category. Unfortunately, our commission income is not our net income.

Jan 14, 2019 12:29 PM
Dora Griffin
D A Griffin Financial.LLC - Fort Thomas, KY
NMLS 6380

Dorte, yes, many Realtors do fall into the self employed category.  Unless you have a spouse who is a W-2 earner or one or both of you makes a lot of money it can be challenging. You have to choose between writing off all your expenses or paying more taxes if you want to buy a home with the lowest rates. Thanks for your comment! Have a great day!

Jan 15, 2019 07:24 AM