I'm Self Employed, Can I Buy A Home?
I had a call today from a self employed home buyer with questions about buying a home. He had called his banking partner and was told he needed two years of self employed income to qualify for a home loan and he should call a mortgage broker. And they are right, mostly.
I say mostly right because as a mortgage broker there are lenders who have alternative ways of closing home loans for the self employed. The problem is a big down payment is required and the higher the credit score the better. Most first time home buyers do not also have a lot of savings; those that do may not want to spend it on a down payment or like the interest rate involved.
So, in a nutshell, yes a self employed person with less than two years in that endeavor CAN buy a home it is just not practical usually.
I often have self employed individuals tell me their income based on gross receipts. For a self employed person it is best to consider income the amount on which you actually pay taxes. There may be some adjustments but this is a gauge of what a lender might consider actual income. A practical step for someone with a home in his future would be to perhaps not write off all the expenses to avoid taxes but instead have higher reportable income. For instance if gross receipts are $60,000 but $40,000 is expended then the income for the year is $20,000. You can't buy much house with that.
If someone self employed finds himself in a position of wanting to buy a home with conforming financing he does need to have a two year history and do some prep work ahead of time to be successful. Maybe don't take all the expenses available. Begin with the end in mind.