Self-employed Mortgage Advice
Are you self-employed and applying for a mortgage? Here’s an introduction to self-employment for the purposes of home loans.
Self-employed income usually comes in two forms:
Schedule C and Schedule E on your tax returns
If you are a sole proprietor, a gig-worker, or decided not to incorporate your business, you’ll find your income on schedule C. Alternatively, when your profits from an incorporated business show up via a K-1 that you receive from the business, you’ll find your income on schedule E when your profits.
Schedule C income:
To clarify, I’ve included here a snip of the Schedule C part of the income calculations that mortgage lenders do. It clearly lays out what income we can use and what income we have to deduct. I even show you the relevant line numbers.
If you receive K-1 income, and we are using tax returns to qualify your income, we need documents. This is true whether or not we use the K-1 income to qualify your file. We want to make sure we’re not counting a loss against you.
Also, If the K-1 shows that you have more than 25% ownership interest in the business, the underwriter will require all pages of the full business return whether or not we are using the income for qualifying. This is part of the “document everything” ethos mortgage lenders have to adhere to.