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23
How To Buy A House When You're Self-Employed
Getting a mortgage for a new home isn't easy without a substantial income, good credit, and a low amount of outstanding debt. If you're self-employed, lenders will require additional information to verify the stability of your business. Buying a home when you're self-employed is more complicated, but our real estate agents have tips to help you through the process.
Know What Lenders Are Looking For
If you're self-employed and looking for South Bend homes for sale, mortgage lenders will need to verify your eligibility for a home loan. You can expect lenders to ask for proof of the following information before they will consider you for a mortgage:
- The type of business you operate (sole proprietor, partnership, or corporation)
- The nature of your business
- The location of your business
- The number of employees you have
- The financial strength of your business (annual gross income)
- The ability of your business to generate future business and income
Gather Documents To Verify Your Self-Employment Income
While employees earn a regular monthly wage, self-employed income usually fluctuates, To verify your income, lenders will require the following documents:
- Bank Statements – showing your monthly bank account balance, your deposits and debits, and any unusual activity. Most lenders will ask for 3 months to 6 months of bank statements.
- Profit and Loss Statements – showing your Schedule C, Form 11205, or K-1. To show proof of self-employment history, lenders may ask you for 2 years of 1099s or a statement from your accountant, depending on how your business is structured.
- Personal Tax Returns – lenders will usually ask for at least 2 years of your most recent tax returns (including W-2s if you are paid through your corporation.
Gather Information to Verify Your Business
- A state business license showing your official business name, business address, and the official start date of your business.
- An official "Doing Business As" (DBA) – A DBA is filed in Indiana as an assumed business name, rather than your personal legal name. It does not change anything about your business structure, only the name of your business. In Indiana, sole proprietors and general partnerships must file a DBA with the county recorder in the county where they do business. Corporations must file with the Secretary of State. Before filing a DBA in Indiana, you can check the availability of the name by searching the Indiana Secretary of State's website.
In Indiana, sole proprietors and partnerships need DBAs to open business bank accounts and sign legal documents. DBAs are required for Limited Liability Companies (LLCs), businesses that can combine taxation of a sole proprietorship and a partnership. Corporations file DBAs to operate companies in different industries.
Get Prepared Before You Contact a Mortgage Lender
To reduce the chances of a denied loan, get prepared prior to filing an application for a mortgage loan. Start gathering the necessary documents and keep an eye on your debt-to-income ratio, your credit score, and your profits and losses. Your debt-to-income ratio is the percentage of your gross monthly income that goes toward paying monthly debts (business and personal) such as business expenses, property taxes, utilities, food, and repairs. If your debt-to-income ratio is more than 50%, your loan application may be denied.
Mortgage loans for self-employed individuals go through the same process as other loans. You can apply for a conventional, FHA, VA, and jumbo loan, but lenders have to verify that you're able to repay the loan.
Thinking about a move to South Bend? Contact us for information and prices on available homes for sale in neighborhoods that fit your family's needs and lifestyle.
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