Category Archives: income types

Self-Employed Mortgages

Since mortgages are loans to buy homes, usually (except in the crazy lead up to the 2007-2008 fiasco), banks require proof of income to know that the money they lend is likely to be paid back.  With the craziness of IRS rules and regulations in the United States, proving income based on tax returns for the self-employed borrower can be a little more difficult than for the 9-5 wage earner.

Additionally, most human mortgage underwriters want to see some proven stability in income level before giving the go ahead on the best interest rate mortgages to self-employed borrowers.  Makes sense, doesn’t it?  The higher the risk, the higher the price to the borrower (interest rates are the “price” of borrowing money).

The automated underwriting tools in the mortgage industry today call for different degrees of required income documentation based on a complicated bunch of rules that consider a buyer’s credit history, assets, down payment or loan-to-value ratio and other factors.  So income documentation may sometimes be less stringent if the computers say a borrower is good to go versus a human underwriter reviewing a loan file.

The point is, if you are a self-employed borrower, be prepared to be asked for tax returns, possibly a couple years of bank statements showing deposits, and other documentation that a W2 borrower might not be asked for.  The better your credit and overall financial situation, the more likely you won’t be asked for as much.

Of course, depending on the lending institution you work with, the rules vary.  This is where the advantage of a mortgage broker can come into play, as they can use their market expertise to help you shop for the best deal, per your particular circumstances.

Questions or comments?  Please post below!