Getting a mortgage when you're self-employed in New Hampshire

Who counts as self-employed?

For Fannie Mae, anyone with a 25% or greater ownership interest in a business is self-employed. That includes sole proprietors and 1099 contractors filing a Schedule C, partners, and owners of an LLC or S or C corporation. If you own less than that and get a W-2 from the company, your income is usually treated like any other job.

How long do I need to be self-employed?

Lenders generally look for a two-year history of earnings. Fannie Mae can consider a shorter history when your most recent signed personal and business tax returns show a full 12 months of income from the current business, and you earned the same or more before it in the same or a similar line of work.

If the business has existed for five years and you've owned at least 25% of it for those five years, Fannie Mae can accept one year of returns instead of two. FHA, VA and other programs have their own versions of these rules, which is one reason to talk through your history with Tom before you apply.

How do lenders figure self-employed income?

From your tax returns, not your gross sales. The lender completes a cash flow analysis, often on Fannie Mae's Form 1084, that starts from the income on your returns and works through the schedules: Schedule C for a sole proprietor, K-1s for partnerships and S corporations, and the business return itself when it's needed.

Fannie Mae can waive business returns when you provide two years of signed personal returns, use personal funds for the down payment and closing costs, have been in the same business for at least five years, and your self-employment income from it rose over the two years.

Do my write-offs lower the income a lender can use?

Usually, yes. The deductions that lower your taxes also lower your qualifying income. Some non-cash expenses, such as depreciation, are typically added back in the cash flow analysis, because no money left the business. Others, like meals or a vehicle, generally stay subtracted.

If you're planning to buy in the next year or two, talk with your CPA and Tom together before you file. Tom isn't a tax advisor, but he can show what a filing choice could mean for your loan.

What if my income went up or down?

Lenders look at the trend, not just the latest year. Steady or rising income is usually averaged over the period reviewed. If income dropped, the lender may use the lower, more recent figure and will want to understand why, so a short explanation and a year-to-date profit and loss statement can help.

What should I gather?

• Two years of signed personal federal tax returns, all schedules
• Business returns (1065, 1120S or 1120) and K-1s if you own a partnership or corporation
• A year-to-date profit and loss statement if the lender asks for one
• Proof the business is active, such as a license, a website or a letter from your CPA
• Two months of bank statements for the accounts you'll use for closing

The document checklist builds a list for your situation.

What if my tax returns don't show enough income?

A few paths can help: adding a co-borrower, waiting for a stronger tax year, or a bank statement loan that uses deposits instead of returns. Those loans have different terms and costs, so Tom can price both side by side across the 45 lenders Elite Mortgage Group works with.