The key to qualifying for a mortgage is having good credit, low debt, and predictable income. For people who are self-employed, proving that they have predictable income may be difficult. I’ve consulted many clients with this challenge, and these are the issues they usually need to address:
- Documenting income. A mortgage company wants to know how much money you actually earn. Make sure you document all income and expenses. Use accounting software to hire an accountant/bookkeeper to keep your records for you.
- Separate personal and business expenses. Open a separate bank account for your business. Using the same bank account for both will make it difficult to separate business from personal income.
- File taxes. Mortgage companies want to know what your annual income numbers are, and will request tax returns for the most recent two years.
If you’ve been self-employed for less than two years, your best option is to wait until you have at least two years of tax returns to be able to qualify for a mortgage as someone who is self-employed. You should also save for a larger downpayment, since most self-employed borrowers need to pay at least 10% towards the purchase of a home.
