Self Employed Mortgage: How To Get Approved in 2022 if Self-Employed or Entrepreneur 🏠
Is Getting a Mortgage Hard for Self-Employed Buyers?
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Okay, is it hard to get a mortgage as a self-employed borrower? I stuttered because in 2020 and 2021, it was... okay, I'm going to be very honest with you guys, self-employed loans during 2020 and 2021 were miserable. It was miserable, and the reason is that when COVID hit, all of a sudden, all these guidelines came raining down like acid rain, you know? You had to have a profit and loss, you had to have a two-year history, you had to have... we had to do this, you know, three months bank statements. There was a self-sufficiency calculator of doom; like, it was ridiculous. Like, it was ridiculous, and it made it really hard for self-employed buyers.
So, if you're like, "It's impossible," you probably talked to a lender in 2020 or 2021. And the thing that you guys need to know is the amount of work that was put on lenders to do self-employed buyers, there's a lot of lenders that just said, "Forget it," you know? Forget it. And there's the other lenders where, you know, of course, I will always help everyone that comes to me, but I wasn't actively talking about self-employed buyers because I was very concerned that it was going to negatively impact my business because of the new guidelines, how ridiculous and how narrow-viewed they were. So the last thing I ever want to do is tell you guys, "Hey, call me, call me, call me, I can do this," and then make you want to kill me because of how ridiculous the guidelines were. And I'm being very blunt, as you guys know.
So those guidelines have rolled back, okay? They rolled back a little bit ago. So here's the keys about getting a self-employed and getting a mortgage when you're self-employed, okay? Now, look, if it's a government loan, we're always going to want two years - very important. So as I film this, it's 2022, so I would be looking for 2020 and 2021, okay? And if you're like, "Well, Jen, my business sucked in 2020, but it's great in 2021, and it's killer now," guys, I can't use this year. So that's the thing you need to know as a self-employed buyer, I can't use year-to-date to qualify - very important. Okay, I'm going to be looking at that two-year history. Now, if you're like, "Well, shoot, I haven't filed 2021, they're not due till October, I filed an extension or whatever the situation is," okay, I'm going to be looking at 2019 and 2020. And you're like, "Well, wait, what if I do a profit and loss for 2021?" No, guys, I can only count the income if it is on filed tax returns, period. Okay, that's the first thing. Now, that's government loans. You need two years.
Conventional, you know, if you've been in business for over five years, if the computer likes you, okay? Because the computer is the one that's telling us when we can get away with one year of tax returns. That is back, thank you, baby Jesus, for bringing that back. Like, uh, I have to tell you, 2020, 2021, still having nightmares about those self-employed guidelines.
So if the computer calls out that you only need one year tax returns, that's all we need, okay? Now, once again, if you're like, "Jen, 2021 was good, but this year's amazing," guys, if you want to use this year, you're going to have to file your taxes in 2023 and call me then, okay? It is that simple, and that is what you guys need to know.
Now, there's some people who, no matter what the guidelines are, they're going to tell you, they're going to be like, "You can't get a mortgage if you're self-employed, banks hate us." No, no, no, no, no, I wanted to spell this one quickly. We don't hate you. We love you guys. I don't care what your income is. Every loan I do makes me money. I don't care what your income is. Come on board. We don't hate you. We don't hate you. We love you. What we hate, you knew that was coming, right? What we hate is when you, let's, when you write off all your income, right? And then you're like, "But I really make..." Okay, let's talk about "but I really make." So if you make a million dollars and you have nine hundred thousand dollars worth of write-offs and no depreciation, guess what? You make a hundred thousand dollars. It's that simple. And what sometimes people will say is they'll go, "Well, you know the game." I hear that so much, you know, the game. Okay, the game they're referencing is when you write off everything you can think of so you don't have to pay taxes. Those write-offs aren't real. They're partially, but they're created in order to not pay taxes.
Okay, so here's the deal: as a lender, I know we can't play games like that. So if you give me tax returns, I have to take at face value that everything that you have said is an expense is a real expense. And even if I was crazy enough to argue to an underwriter, right, because sometimes they're like, "We'll talk to your underwriter." Guys, what am I saying? Hey, Sheila, okay, I know it looks like he had a lot of expenses, but he, like, made him up to not pay taxes. So can we just qualify him at a higher amount? Guys, if you're committing fraud on your taxes, do you think that makes you look sexy to a mortgage lender? Seriously, no, it doesn't. It doesn't. I get it; you don't want to pay taxes. Guess what? I don't either. But as my dad tells me every single year when I'm paying taxes, Jenny, it is a blessing to be able to complain about paying taxes. Many people do not have the ability to complain about that because they are barely getting by. Take that with a grain of salt, right? That keeps it real.
So that's the deal. If you guys want to get a mortgage, absolutely no problem. Self-employment, super duper easy. It's just critical that you know that we are going to take your tax returns at face value. So keep that in mind. What else is so important about self-employed? Oh, I get this one a lot. So a lot of times people will be like, "Oh, I'm not self-employed; I'm W-2 because they own a company that W-2s them." Guess what, guys? If you own over 25% of that company, you're an owner. We're going to want your business tax returns; we're going to want your personal tax returns. I don't care if you W-2 yourself, what you do with yourself. If you own over 25% of that business, you are an owner. So it's critical to know because what happens is, and I don't know if there's like a tax channel or someone's telling people, "No, no, just give the lender your W-2s, and everything else will keep on the DL." No, and the reason why the lender is going to look at those business tax returns is because sometimes what people will do is they'll do their business tax returns; they'll pay themselves fat W-2s, and then they'll have a loss on that business. Well, guess what? If you own the business 100% and you're paying yourself a million dollars and it has a million dollar loss, guess what? Zero, again.
Okay, so the important thing to know is that we are going to look at your tax returns; we're going to analyze them. I always tell people because people will call; they'll say, "What do I need to show on my tax returns?" Okay, so important you guys know this. Guys, lenders can lose their licenses for answering that question because it's considered manipulation of data. No joke. Like, I know of a loan officer who actually lost their license because they told the buyer, "Hey, if you want to get a house for XYZ, you need to show at least XYZ on your taxes." No joke. No joke. It's serious, for real. No one on my team is ever going to tell you what you need to put on your taxes. So if you're like, "Well, I'll book a call, and you can..." No, never going to tell you. And it's because we are not going to manipulate data. And if we give you that number, we are helping to manipulate data because you're saying, "What numbers do I have to show?" We're telling you, and then you're showing those numbers based on what we said. It's manipulation of data.
So the bottom line is be honest and ethical with your taxes. That's it. Because here's the thing: if you follow your taxes, file—excuse me—without the BS, without all the creativity, that will actually show us what you really qualify for. And the key as a lender is we want to make sure that you can get into a house you can afford. So sometimes people go the reverse where they don't write off anything because they really want to get a more expensive house. Well, guess what? If you have real expenses and you don't write them off and you get that more expensive house, how are you going to pay for it when you're paying those real expenses? Right? Right. In life, it is so much easier to be honest. It really, really is. Like, you sleep well at night. You know, the way things carve out is the way they're supposed to be. And I know I'm going to get a lot of hate on this video from people that are like, "You just want the—is the government, IRS paying you to do this video?" No, guys, I'm just telling you. I've been doing this for a long time. I see it go every way. Honest and ethical in your tax returns, totally, you can get a house. You know, that's the way to go.
As always, I hope this video has been helpful. Look, guys, if you're self-employed and you're not writing everything off or playing tax games, we're more than happy to help. I work with a lot of business owners. You know, I've been really happy to help them grow their real estate portfolios with planning and making sure everything works. But the key is you just want to be transparent. Okay? I'm licensed in 48 states to do mortgages everywhere but Rhode Island and Utah. Reach out. There'll be a link to the calendar. My phone number is somewhere here. Thanks for watching, guys.
https://www.youtube.com/watch?v=1xkIo-NO9nE
Hey there! If you're considering getting a mortgage as a self-employed borrower, you're in the right place. I'm Jennifer Beeston, and I'm here to give you a detailed guide on navigating the mortgage process when you're self-employed. So, grab a cup of coffee, and let's dive in.
Before we begin, I want to make it clear that self-employed loans have seen some changes, especially in the wake of COVID-19. But don't worry; I'm here to break down the process and make it easier for you to understand.
In 2020 and 2021, self-employed borrowers had a tough time securing mortgages. The sudden influx of new guidelines, driven by the pandemic, made it challenging. These guidelines included requirements like providing profit and loss statements, a two-year financial history, and even a self-sufficiency calculator. It felt like a storm of requirements that self-employed buyers had to navigate.
The good news is that those stringent guidelines have been relaxed. So, if you thought it was impossible to get a mortgage as a self-employed individual, things have changed for the better.
Now, let's get into the specifics of what you need to know as a self-employed buyer.
For government-backed loans, such as FHA or VA loans, you'll typically need a two-year history. Since it's 2022 now, lenders will be looking at your financials for 2020 and 2021. Keep in mind that we can't consider year-to-date income; it has to be based on your filed tax returns.
If you've been in business for over five years, and if the computer systems used by lenders are in your favor, you might qualify with just one year of tax returns for conventional loans. This is great news because it provides more flexibility.
If you're thinking of using your current year's income, remember that you'll need to file your taxes for that year first. So, if you want to use your 2022 income, you'll have to file your taxes in 2023 before you can proceed with a mortgage application.
Let's clear up some misconceptions:
There's a belief that banks dislike self-employed individuals. That's far from the truth. Lenders welcome borrowers from all walks of life, including self-employed folks. We're here to help you achieve your homeownership goals.
One of the biggest pitfalls is inflating your income by writing off too many expenses on your tax returns. It's essential to understand that lenders take your tax returns at face value. We can't help you manipulate the data, and we wouldn't want to. Honesty is key.
Some self-employed individuals choose to write off as many expenses as possible to reduce their tax liability. While this might save you money on taxes, it can also lower your reported income, affecting your mortgage qualification.
If you own a business and receive a W-2 from it, but you also own over 25% of that company, you are considered an owner. Lenders will require both your business and personal tax returns. So, don't assume that having a W-2 from your own business means you can skip providing business tax returns.
In conclusion, getting a mortgage as a self-employed buyer is absolutely possible. The key is to be transparent and honest about your income and expenses on your tax returns. Playing games with your tax deductions can lead to complications in the mortgage application process.
It's always better to be straightforward with your finances. That way, we can work together to find the right mortgage solution for you.
As always, I hope this guide has been helpful. If you're self-employed and looking to buy a home, don't hesitate to reach out. I'm licensed in 48 states (excluding Rhode Island and Utah), and I'm here to assist you on your homeownership journey.
Thanks for reading, and best of luck with your mortgage journey!