How lenders see self-employed income
When you work for yourself, there's no W-2 to show your pay. Instead, lenders use your tax returns to see what your business actually earns after expenses. At CapCenter, we use your tax returns instead of W-2s.
Documents to expect
- Two years of personal tax returns, with all schedules
- Two years of business tax returns, if your business files its own
- A year-to-date profit and loss statement
- Recent business and personal bank statements
- Proof the business is active, such as a license or CPA letter
Two-year average
Lenders often average your income over the last two years. If your income went up, the average may be lower than your current earnings. If it went down, they may use the lower, more recent figure and ask why it dropped.
Write-offs and qualifying income
Deductions lower your tax bill, but they also lower the income a lender can count. Some expenses, such as depreciation, can be added back. Others can't. If you plan to buy in the next year or two, talk with your tax professional about the balance.
Less than two years in business?
Some programs accept a shorter history, especially if you worked in the same field before going out on your own. Expect more questions and documents.
How debt-to-income works for you
Like any borrower, your monthly debts are compared with your qualifying income. At CapCenter, your debt-to-income ratio can be up to 50%, depending on your loan and the rest of your file. Because write-offs can lower qualifying income, paying down personal debt can make a real difference.
How to get ready
- Keep business and personal finances in separate accounts
- File your returns on time and keep copies
- Pay down personal debt to improve your debt-to-income ratio
- Save reserves: lenders like to see a cushion
Get pre-approved
A pre-approval starts with a soft credit check, which doesn't affect your score. It shows how a lender reads your income before you start making offers.
