How lenders read self-employed income
At CapCenter, we use your tax returns instead of W-2s. Lenders look at what your business earns after expenses, because that is the income available to pay your mortgage. They often average the last two years to smooth out ups and downs.
Documents to gather
- 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 a letter from your accountant
How write-offs affect your refinance
Deductions lower your taxable income, and that is the number lenders start from. A strong year on paper helps; a year full of write-offs can make it look smaller than it felt. Some expenses, such as depreciation, can often be added back. Others can't.
If you plan to refinance in the next year or two, talk with your tax professional about the balance between deductions and qualifying income.
When income has changed
If your income rose, the two-year average may be lower than what you earn today. If it dropped, lenders may use the lower, more recent figure and ask what happened. A short explanation, plus a current profit and loss statement, helps the lender see the full picture.
If you changed business structure, for example from sole proprietor to an LLC or corporation, share that early. It can change which returns the lender reviews.
Refinancing has an advantage
You already have a mortgage and a payment history. A record of on-time payments shows you manage housing costs well. If you have an FHA or VA loan, a streamline refinance may need less income documentation, so ask whether one fits your goal.
Get ready before you apply
- File your returns on time and keep complete copies
- Keep business and personal accounts separate
- Pay down personal debt to improve your debt-to-income ratio
- Avoid big new business loans right before you apply
Refinancing with CapCenter
Your loan consultant can tell you the debt-to-income ratio your loan allows. Refinances come with ZERO Closing Costs (restrictions apply). You need a credit score of at least 620 for a CapCenter loan.
