Home Loans For Self-Employed Borrowers With No Income Docs

Peter Bieda The Mortgage Expert
April 23, 2022 - 7 min read

In this article, we will discuss and cover qualifying for home loans for self-employed borrowers with no income documentation required. In this blog, we will present all types of home loans for self-employed borrowers. Homebuyers who own their business without qualified income can qualify for home loans for self-employed borrowers without income tax returns. You do not have income W2 income to qualify for a mortgage if you are a self-employed homebuyer.

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Determining Income For Self-Employed Borrowers

Income For Home Loans For Self-Employed Borrowers

Getting home loans for self-employed borrowers with no income docs can be challenging. Mortgage underwriters want to see qualified income from the past two years. This is because the past income history is the best indicator of the likelihood for borrowers to have a continuation of income. Self-employed borrowers can find challenges with qualified income due to the substantial deductions. Business owners and 1099 wage earners have the ability to take advantage of expensing unreimbursed business expenses on their income tax returns. Claiming a lot of unreimbursed business expenses will lower adjusted gross income which means paying less taxes. Paying less taxes means lower qualified income to qualify for the home of their dreams.

Challenges For Home Loans For Self-Employed Borrowers

Here are the main factors which you might struggle with:

Deductions from taxable income can reduce your borrowing power.
Proving what you earn is not always easy.
If the most recent tax returns show a drop in self-employment income, lenders may not give you credit for all of your income.

Fortunately, there are home loans for self-employed borrowers which allow alternative income and nontraditional income for self-employed home buyers.

Qualify Today For Home Loans For Self-Employed Borrowers: CLICK HERE

Stated Income Home Loans For Self-Employed Borrowers

Stated income loans were very popular with self-employed borrowers in the past. They allowed lenders to use the client’s estimate of income and to estimate income from credit reports and bank balances. Today, the only mortgages that don’t require proof of a borrower’s personal income are loans for income property where the property itself generates enough income to cover the mortgage payment. Loans for a primary residence, however, are subject to the Ability to Repay rul or ATR. Lenders must by law verify income when you apply to buy a personal home.

Home Loans for Self-employed Borrowers Income Qualification

The problem with taking legitimate business deductions at tax time is that your income might look very low on your income tax returns. Your home office deduction, for instance, lets you deduct costs tht you’d have whether you worked from home or not — utilities, rent, maintenance, etc. But it lowers your taxable income and your qualifying income for a mortgage.

Here is a perfect example:

Schedule C, Profit, and Loss, of your federal income tax return, shows gross receipts of $100,000
But you deducted your home office, the company trip to Hawaii for meetings, business dinners, furniture and a couple of laptops to the tune of $25,000.
This means that your lender only counts $75,000 in income for the year
This is the income that the lender will use to qualify you and calculate your debt to income ratio for a loan approval

So while it may seem beneficial to claim higher deductions for tax purposes, your purchasing power will be impacted by your limited income on paper.

Amending Tax Returns When Qualifying for Home Loans for Self-Employed Borrowers

If you know you’re going to buy a house soon, can you amend your old tax returns to show more income? Yes, you’re allowed to do that. You’re also allowed to file a return showing more income and then amended it to add your deductions and reduce your taxable income. However, that can be a real hassle and if you make a mistake it could get you into IRS hot water. There are other loan programs that might work better for you.

Grossing Up Income For Home Loans For Self-Employed Borrowers

If you are self-employed, your income will be grossed up, meaning that payments for items like health insurance premiums and payments to a retirement account will be added to your monthly income. Lenders also add back deductions for depreciation and depletion because those are expenses that you don’t actually write a check for. They are “paper” expenses.

What Are Lenders for Self-Employed Looking For?

Non-QM Loans For Self Employed Borrowers

A lender will need to see two years of 1099 income in order to qualify the income as a stable monthly income. Some special circumstances will allow you to provide just one year of self-employment history. For example, if you worked in the same industry before becoming self-employed and your pay is now at least what it was an employee. Additionally, some loan programs may allow one year of self-employment with automated approval.

Are You Able To Gross-Up Retirement Income?

Some lenders may use your retirement or other assets to increase your income. That’s called asset depletion. They might, for instance, discount your savings by 70%. Then they divide that by the number of months in your mortgage. The result is extra monthly income for you. If you have less than one year of self-employment income, you will find it very difficult to get a mortgage loan.

Bank Statement Loans as a Type of Home Loans For Self-Employed Borrowers

A motivated lender will search for many avenues and offer a multitude of solutions for a borrower with self-employment income. Capital Lending Network now offers 12 months of bank statement loans for self-employed home buyers. You don;t need tax returns. Underwriters average bank statement deposits to calculate an average income. You’ll need a 10% to 20% down payment. Your mortgage rate depends on the down payment and credit scores. There is no mortgage insurance requirement.

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C-Corp and Mortgage Qualification for Home Loans For Self-Employed Borrowers Business Owners

A corporation (also known as a C corporation) is a state-chartered legal entity that is owned by its shareholders and that exists separately from its shareholders. The company itself can sue, be sued, hold and convey the property. Corporations can enter into contracts in the corporation name. In addition, a corporation does not dissolve when its ownership changes.

There are two types of corporations—large, publicly-owned corporations and privately owned (closely held) corporations. In the following paragraphs, we will discuss and cover the Self Employed Borrowers And Corporations Mortgage Guidelines.

Shareholders Of Corporations

Shareholders are not responsible for the day-to-day operation of a corporation. Instead, a company’s board of directors manages the company and delegates responsibility for the day-to-day operations to the directors and officers. Corporations must file corporate income tax returns and report income and losses on IRS Form 1120.

Corporations distribute profits to shareholders in the form of dividends. Dividends are reported on IRS Form 1099-DIV. The shareholders must then report the dividends as income on their individual IRS Form 1040. In addition, owners and others who work for the company are paid wages and must report them on their individual tax returns.

What Are S Corporations: Self-Employed Borrowers

A Subchapter S corporation is a small business with a limited number of shareholders (no more than 100 shareholders are permitted) and only one class of stock. The corporation elects not to be taxed as a regular corporation. Instead, business gains and losses are passed directly to the shareholders, who include their pro-rata share of capital gains, ordinary income, and other taxable items on their personal income tax returns.

The mortgage industry considers any person with a 25% percent or greater ownership interest in a business to be self-employed.

What Are Independent Contractors?

Each shareholder in an S corporation reports his or her share of the income on IRS Form 1120S, Schedule K-1. One advantage of an S corporation is that double taxation is avoided. A final category of self-employed individuals to be aware of includes independent contractors. People such as accountants, bricklayers, translators, and others who are in an independent trade, business, or profession in which they offer their services to the general public may work as independent contractors.

However, for legal purposes, whether a person is an independent contractor or an employee depends on the facts of each case. Sometimes the determination of whether a person is an independent contractor or an employee can be tricky.The general rule is that an individual is an independent contractor if he or she has the right to control or direct only the result of the work, as opposed to what will be done in the work and how it will be done.

Learn More About Home Loans For Self-Employed Borrowers With No Income Docs

Employer Versus Employee

A person is not an independent contractor if he or she performs services that can be controlled by an employer, that is, what work will be done and how it will be done. The distinction is that when an employer controls how services are performed, the worker is an employee. When an employer controls only the result of the work, the worker is an independent contractor.

Qualifying For a Mortgage If You Are an Independent Contractor Wage Earner

In addition, independent contractors will receive an IRS Form 1099 from the companies with whom they work, which reports the amount of income paid to them over the course of a year. An employee’s wages, in contrast, are reported on a Form W-2 for tax purposes. There are various types of business formations, along with how business income is reported and taxed, and the advantages and disadvantages of doing business under each structure.

Qualify and Get Pre-Approved For Home Loans For Self-Employed Borrowers With No Income Docs

Home Loans For Self-Employed Borrowers Mortgage Guidelines

Self-Employed Borrowers who own a corporation can qualify for a home mortgage. One person can be the sole owner of a corporation. Other corporations may be owned by dozens, hundreds, or even thousands of shareholders. If you own 25% or more of a corporation, two years of corporate returns are required. It is possible for a corporation owner to be an employee of the corporation and still own all or part of the corporation.

Hybrid Home Loans For Self-Employed Borrowers

If you are a salaried employee of the corporation and own less than 25% of the corporation, corporate income tax returns are not required. If you’re looking to qualify for a home loan for self-employed borrowers please go here and fill-up the form and one of our mortgage professionals will contact you to go through a case scenario to see if you can qualify. Please call us at 800 900 8569 with any questions, we are available 24/7 to help you with your mortgage needs!