Lending Advice for the Self-Employed

Want to take advantage of low prices and interest rates to refi your home or borrow for a new house?   If you’re self-employed, qualifying for a home loan is a little more involved for you than for your wage-earning friends.

For the self-employed, here are some tips to help you get your loan application approved:

  1. Furnish your lender with your income tax returns for the past three years.
  2. Provide evidence of your year-to-date income — Profit & Loss statements and monthly bank statements for your business(es), securities investments and income property.
  3. List clients with whom you’ve had long and consistent contracts, along with charts or spreadsheets of your monthly income and expenses for the past couple of years.
  4. Provide a balance sheet listing all your assets and long-term liabilities so the lender can analyze your accumulated wealth as a source for repayment.
  5. Maintain cash reserves and be able to document the source of your deposits – i.e.., an inheritance or simply accumulated money and earnings from your occupation.
  6. Pay off all credit cards and other short-term debt.  Keep your balances down to current monthly charges.
  7. Be prepared to offer an explanation for any income fluctuations and extraordinary flows of money.
  8. Apply for your mortgage with a local community bank or credit union; these smaller lenders will take the time to process a mortgage application and have personnel who can make discretionary decisions. It is important to make sure the lender understands a self-employed person’s tax return, since the adjustable gross income (AGI) shown on it is very different from taxable income.

Adapted from information supplied by first tuesday Realty Publications, Inc., P.O. Box 5707, Riverside, CA 92517.