I’m Considered Self-Employed?

    Most people would consider themselves to be self-employed if they own their own business. The mortgage industry, however, looks at the source of income to determine how to calculate a borrower’s qualifying income.  Some examples of unusual income sources that could be treated as self-employed would be:
    – 100% commission employees
    – Those paid by the “job completed”
    – Independent contractors
    – Having 25% ownership or more in a company
    – Rental properties or farm income
    – Tip income


    The mortgage guidelines require that a borrower with income from any of the sources above, show a 2 year history of net income within the same industry and in most cases, the same geographic area.   Underwriters will be looking at the borrower’s Federal Income Tax 1040 form to see what income and expenses are taken as deductions.   For example, while claiming non-reimbursed business expenses is a great idea from an accounting standpoint, the total shown on page 3 of the individual tax return will be deducted from the borrower’s income. Tax transcripts from the IRS will be used to verify personal and corporate returns.

    What about my business on the side?

    Another source of income for many people are “side” businesses. These borrowers have full time jobs but also receive income as tax preparers, cosmetic distributors, piano teachers, coaches, etc.   The mortgage guidelines require lenders to also take that income or loss into consideration.   The good news is that if the borrower can demonstrate a 2 year history on their tax returns, that income may be used. Unfortunately, a loss of income during the most recent tax year will result in a deduction from any qualifying income.

    The best way to know what the mortgage industry will use for qualifying income, is to speak to a professional loan officer.
    CherylCloudArticle By: Cheryl Cloud
    Heritage Bank Mortgage
    NMLS# 545242

    Trackback from your site.

    Leave a Reply

    Reviews on Zillow
    "Tammy Roberts was a wonderful agent to work with. She was very knowledgeable in all aspects and I would strongly recommend her to anyone buying or ... more "
    by zuser20161230122206903
    "I am happy to say that my work with Debbie Williams went very well! I purchased a home in a seller's market, so in order to get the town home that I ... more "
    by christinecarr3
    "Adrienne is a super star! She was always there for me whenever I had any questions regarding the sale of my previous home or the purchase of my next ... more "
    by jasonandtara1