SELF-EMPLOYMENT

Miscalculated income is the number one reason mortgages fall apart for self-employed people.  Before any credit check is done, having a lender review your financials is always step one.  Let us review what you have filed on your taxes, your current profit and loss statement and the most recent 12 months of your bank statements.  If you have substantial savings, those will be important too as some programs can consider those as an income source through more creative underwriting approaches.
 

What Should I Expect To Be Asked?
 

While each scenario can be different and lead to additional questions, here is a good framework of the pertinent informaiton that specifically can influence a self-employed person getting a pre-approval or not.  Often times most self-employed people do not know all of the answers to the below off-hand, and even if they think they do, sometimes the paperwork proves up otherwise.  That's why the number one recommendation to be sure your lender has the experience to know how to review your documents upfront to assure you loan will stay on track.  It is a fact that most loan originators especially with big box banks are not responsible for this review, rather, it will fall on the underwriter your file will make its way too usually well after you've gone under contract on a home. 

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Note, if you own more than one business, questions would be asked for each individually.

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Examples:

• For a downpayment, what is your goal?  Minimum down or can you put 10%, 20% or more down if needed?

• How long has the business generating your income been in existance on paper?

• What percentage of the company do you own?

• How long have you been self employed?  If less than two years, where you in the same line of work before?

• Compared to last year, how is your business performing?  Does the same, better or worse?

• What legal structure is your business? Are you an Independant Contractor filing a schedule C on your personal tax returns?  Do you have an S-Corporation, a Partnership, or a Corporation?

• Have you changed your legal structure in the past two years?  Example, going from being an Independant Contract filing a schedule C on your personal tax return to being an S-Corporation?

• Is your business organized as an LLC?

• Does your business pay any of the expenses I may see on your credit report and if so, can that be proven showing 12 months of your business bank account paying it?

• Are there any pending lawsuits you are involved with?

• Do you use a professional tax preparer to file your taxes?

• What method do you use to track your business activity throughout the year, Quickbooks, etc?  If needed could you prepare a year to date profit and loss statement and balance sheet?

• Are you currently up to date with all of your tax filings?

• Are you currently on an extension for filing the most recent year's taxes and if so, have you paid any estimated taxes due?

• Are you current with the IRS on all taxes?

• Are you on a payment plan with the IRS and if so, have you been current on payments for the past 12 months or since the agreement started?

• Do you use a business bank account or a personal bank account for your business operations?  

• Have you changed banks in the past twelve months?

• Has your business bank account (business or personal) overdrafted at all in the past 12 months? If so, approximately how many times?

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