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a friend of mine listed that he was self-employed construction worker on his 2021 tax returns and became a Commercial Insurance Broker in 2022 (also self employed).
He has great credit (778 and 765 scores on CreditKarma) and a decent-sized nest egg to use for a down payment - yet would any banks or mortgage companies lend to someone who only has 1 year of his current line of work on his tax returns.
Being self employed seems like a major obstacle to getting a home loan.
It IS a major obstacle for a lot of lenders, and most Real Estate Agents who have bought their home after becoming self-employed are well aware of this because we've been through it. Ask some of local agents in your area who they recommend.
There are lenders around who do better than others. Sometimes local credit unions who have in-house underwriting or local banks.
We had both self-employment, and an unusual multi-parcel property that was giving some lenders pause when we tried to re-finance. We ended up at a local bank who keeps their own loans in house, instead of selling them. It offers them a lot of flexibility in what they can do, like computing income from Tax Returns and banks statements, instead of W-2s.
Last edited by Diana Holbrook; 05-26-2023 at 12:03 PM..
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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I did it, with no history with the business, which I had just bought, and only tax returns from my last year as an employee in another state. That was in 1993, however, I doubt that the lenders today would touch that with a 10 foot pole. With only one year of history in the business it may be difficult, but I agree with Diana, credit unions are more likely to approve it.
a friend of mine listed that he was self-employed construction worker on his 2021 tax returns and became a Commercial Insurance Broker in 2022 (also self employed).
He has great credit (778 and 765 scores on CreditKarma) and a decent-sized nest egg to use for a down payment - yet would any banks or mortgage companies lend to someone who only has 1 year of his current line of work on his tax returns.
Being self employed seems like a major obstacle to getting a home loan.
Post 2007 sub-prime mortgage crisis and 2008 recession that followed things have tightened up dramatically in terms of obtaining a mortgage.
Stated income mortgage loans that were quite popular before 2007 largely have vanished as well they should. Things were far too fast and lose which contributed to crisis when thing started to hit fan.
No document (aka No Doc) loans are still around however, but not every lender does them and those that do are careful about who they take on.
Long story short your friend will need to show a lender that does no documentation loans that he or she has a decent if not solid income and credit history among other bits.
Chase Bank among others will do mortgages for "self-employed". Tell your friend to look around his/her local area for lenders or mortgage brokers that do same.
a friend of mine listed that he was self-employed construction worker on his 2021 tax returns and became a Commercial Insurance Broker in 2022 (also self employed).
He has great credit (778 and 765 scores on CreditKarma) and a decent-sized nest egg to use for a down payment - yet would any banks or mortgage companies lend to someone who only has 1 year of his current line of work on his tax returns.
Being self employed seems like a major obstacle to getting a home loan.
8 out of 10 entrepreneurs fail in the first 18 months. (According to Bloomberg.)
Not only self employed but only 1 year in that field. I'd think it would be near impossible to get a mortgage right now. Does he have a working spouse?
When we moved to a new state and bought in 2008, we went through a good mortgage broker and still had to have 2 full years of tax returns showing our self employed income before we could get a mortgage. The sellers did short term owner financing while we waited to qualify. I also took a part time W-2 job just to boost our income a bit during those 2 years.
OP, lenders use automated underwriting (AUS). Fannie has their AUS (DU), Freddie (LP), VA/FHA/USDA (GUS). As long as the lender puts the loan information in the computer accurately, your friend has a really good shot if the findings come back as Approve/Eligible. Hint: FHA will come back as Caution - ie no - due to s/e time, last attempt they were pretty strict. But, your buddy's best bet is someone with FannieMae or FreddieMac financing. The automated findings will spell out exactly what documentation will be required. Significant compensating factors must be present. I think his biggest challenge is going to be the career change, unless he owned his own construction business. Maybe you could weave the two. The bottom line is the computer must say A-O-K.
This is from Fannie:
Quote:
Length of Self-Employment
Fannie Mae generally requires lenders to obtain a two-year history of the borrower’s prior earnings as a means of demonstrating the likelihood that the income will continue to be received.
However, a person who has a shorter history of self-employment — 12 to 24 months — may be considered, as long as the borrower’s most recent signed federal income tax returns reflect the receipt of such income as the same (or greater) level in a field that provides the same products or services as the current business or in an occupation in which they had similar responsibilities to those undertaken in connection with the current business. In such cases, the lender must give careful consideration to the nature of the borrower’s level of experience, and the amount of debt the business has acquired.
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