How to Calculate Self-Employed Income for a Mortgage in Houston?


Self-employment offers a lot of perks, that’s why a Pew Research Center Report found that about 30% of the US workforce are their own bosses. Such working conditions, however raise a myriad of questions for mortgage lenders and most of these questions revolve around proving income in the absence of a paycheck and business authenticity and/or legitimacy. As you may know, businesses are using them to ensure that borrowers will not fall behind on their mortgage.

Being a real estate training agency, we help self-employed borrowers learn how to overcome homebuying hurdles such as credit checks or income verification through owner financing. Self-employment is not an obstacle for such a type of transaction since there’s not much paperwork required. Basically, your cash is your credit and you make monthly payments just like a buyer financed by a conventional lender does with a fixed interest rate and no balloon payments. The best part is if you are able to qualify for a mortgage anytime in the future, you can switch to a conventional home loan without paying pre-payment penalties. Start the search for your home below and let us know if you find one in your budget or desired location. We will help you buy that home with owner financing.

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So How is Self-employment Income Calculated for Mortgages?

Comparing a borrower’s current monthly income with their proposed housing payment is usually the way to go but since there’s no one way to calculate a self-employed borrower’s fluctuating income, you might be thinking how is self-employment income calculated for such a type of transaction?

As mentioned in a separate article, self-employment is a diverse field and anyone should be looked at differently because of their unique qualifications. This guide will share the details on how that’s done so you’ll have an idea if you can buy or refinance a property with your current self-employed finances:

Consistent or Increasing Revenues

Unlike W-2 documents, lenders review business income not just for the most recent year, but within the two years. A borrower’s income is calculated by adding it up and dividing to total by 24 (months). Your revenues for year one, for example, is within the $80,000 while it increased the following year to $83,000. The income used for qualifying purposes is $80,000 + $83,000 = $163,000 then divided by 24. Which, in this case, would have a difference of $6,791 per month.

Declining Income

Since income is variable and fluctuating, there are certain cases when revenues go downhill. Year one, for instance, may yield $100,000 in revenue while the following year may only reflect $90,000. The calculated monthly income is somewhere around $7,197 and may hinder your chances of approval because of the decline. Since there are no hard and fast rules regulating income decline, it is still up to the judgment of the lending officer and a proper explanation may still result in an approval.

Tax Returns

Since every self-employed borrower’s revenue statement and arrangement can differ, underwriters may ask you for a letter from your CPA to verify that taking money from the business will not risk the ongoing health of your business. Should your declared revenue sources become questionable to the lender, tax returns can be factored in the income calculation process even before application. It also allows the lending officer or underwriter to come up with a qualifying income ahead of time.

As you already know with third-party owner financing, you can buy any single-family home of your choice. Below are some of the home listings in Houston that you might find interesting enough to browse. Get in touch with us if you want to buy a home with the help of a licensed Realtor. 

1831 Properties
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Disclaimer: Shop Owner Finance/ TL Global is not a lender. We are a real estate training agency. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.


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