Can I qualify for a mortgage loan in Washington State, if I’m self-employed? Are there any additional loan requirements for self-employed home buyers in 2017?
These are common questions among mortgage shoppers who happen to be self-employed. Today, we will do our best to address these questions.
Getting a Mortgage in Washington State When Self-Employed
Self-employed home buyers might encounter additional paperwork requirements when applying for a mortgage loan in Washington State. But don’t let this stop you from pursuing your dream of homeownership. Mortgage lenders are happy to work with well-qualified borrowers with stable income and good credit, including those who are self-employed.
Here are four things to know about home loans for self-employed borrowers:
1. Profit-and-loss statements are usually required.
In Washington State, mortgage applicants who are self-employed typically have to provide a profit-and-loss (P&L) statement for income verification. The reason is that the income of self-employed borrowers can’t always be verified through tax returns, as it can for borrowers who work for an employer. So a P&L might be required to round out the verification process.
2. Fluctuating income might be scrutinized.
Self-employed borrowers with fluctuating income, or income that has declined from one year to the next, might face additional scrutiny when applying for a loan. Even so, we are seeing some increased flexibility in this area. So don’t hesitate to apply — it’s the only way to know for sure if you can qualify for a mortgage.
Most loan programs in use today will average the past two years of adjusted gross income, for mortgage qualification purposes. That’s if the income has increased. If it has declined, the lender might use the lowest income from the most recent year. This might not necessarily be an issue. It’s just something to be aware of as you move forward.
3. New programs offer greater flexibility for self-employed borrowers.
In recent months, some new and flexible programs for self-employed borrowers have come onto the market. These aren’t the “stated-income” loans that arose during the last housing boom. But they are more flexible where self-employment is concerned.
For instance, there are now programs that use bank statements instead of tax returns for income verification. This could be advantageous for self-employed mortgage shoppers.
In the past, self-employed borrowers who didn’t have the required two years of federal tax returns to support their business would’ve had a hard time getting a home loan. But that’s not always the case anymore. Looser guidelines from Fannie Mae (the government-sponsored mortgage buyer) allow for one year of returns, as long as cash-flow analysis for the business appears sound. And, as mentioned above, bank statements can sometimes be used in lieu of the standard two-year requirement.
The point is, there is greater flexibility these days for self-employed mortgage loans in Washington State. So home buyers shouldn’t feel discouraged for being their own boss.
4. Your ability to repay is what really matters.
Mortgage lenders (and the government-sponsored enterprises that establish many of their underwriting guidelines) are mostly concerned with your ability to repay the loan.
This is true whether you are self-employed or working for a traditional employer. If your bank statements, tax records and/or cash-flow analysis show that you have the income needed to repay the mortgage loan, you might be approved with no obstacles at all.