If you’re self-employed and looking to purchase or refinance a home, one of the biggest challenges you may face is to prove to a lender that you have enough income to qualify for a new loan.
Most lenders determine qualifying income for self-employed borrowers by averaging the Adjusted Gross Income (AGI) reported on your two most recent federal tax returns.
One of the main benefits of being self-employed is the ability to minimize your tax liability by deducting certain expenses. Naturally, any reduction in your tax liability also reduces your AGI. Depending on the amount of income being reported, this might not cause any issues. If, however, a two-year AGI average is limiting your financing options, we offer several alternative solutions for self-employed borrowers:
- One Year Tax Returns: Loan programs that allow for the review of the AGI from one year rather than a 24-month average.
- Bank Statements: Loan programs that calculate income based on the net monthly deposits of the personal and business bank statements of a self-employed borrower.
- Stated Income: Stated Income programs are available for self-employed borrowers. These programs typically require a significant down payment (around 30%) and a minimum of $250,000 held in non-retirement cash assets (unless of retirement age) after close of escrow.
Both the Stated Income programs and the Bank Statement programs are excellent options to help self-employed borrowers qualify for the maximum amount of loan when the traditional two-year AGI average is not an accurate representation of of income.
