Applying for a mortgage when you are self employed

A self-employed borrower introduces another layer of risk for a mortgage lender due to the uncertain nature of future income.  For this reason, lenders require more documentation at the time of application in order to underwrite the loan.  Here is a list of documentation needed before applying for a mortgage when you are self employed…

  1. Most recent 2 years federal tax returns along with all W-2s
  2. All Schedule K-1′s for partnerships, corporations or S-corps reflected on Schedule E of your tax returns
  3. Most recent 2 years business returns (Form 1120, 1120s or 1065s) for any partnership, corporation or S-corp.

Also, you must verify the existence of the business by providing a letter from a CPA, copy of a business listing, copy of a recent advertisement, or a print out of the business website.

If there is a huge fluctuation (either higher or lower) in income over the past 2 years, it may be necessary to include a 3rd year of tax returns to determine an average, more stable amount.

Many business owners report more expenses to reduce their tax liability.  But, this can backfire when applying for a loan since lenders will use your net income.  So, you must decide what is more important: qualifying for a larger mortgage or saving money on your taxes?