How to Get a Mortgage When You're Self-Employed

(StatePoint) If you're self-employed or own a business, you may be wondering if it's possible to get a mortgage.The short answer is yes, you can, but the process will look different. You'll need to provide documentation verifying your employment and lenders will be analyzing your financial situation and the financial situation of your business to see how likely you are to pay back your loans in a timely manner.To help you put your best foot forward, Wells Fargo is offering guidance on navigating the home loan process.What does it mean to be self-employed?Typically, lenders consider an applicant self-employed if they meet any of the following:• They own at least 25% of a business• The ownership of a business is their major source of income• They complete a 1099 tax form during tax filing instead of a W-2• They're an entrepreneur or sole proprietor whose income is filed under Schedule C of their tax returns• They're an independent contractor or service providerIf you fit into these categories, you'll also need to show lenders verified employment records or proof of self-employment during the past two years. Lenders are ideally looking for your business to have been active for at least 12 consecutive months. They review the overall health of the business, looking at both net income and expenses.What employment documentation is needed?When lenders review your application, they're analyzing items like how stable your income is, if your business has strong finances, and what the future may look like for you and your business. Any of the following forms of documentation can help lenders show proof of your employee verification:• Business licenses and/or DBA certificates• Proof of correspondence with CPAs and/or clients• Proof of business insurance• Profit/loss statements or balance sheets reflecting your business's performance• Lenders' requirements vary. Check with yours for what will be required for your situation.What tax return requirements are needed?Personal tax returns under IRS Form 1040 include various schedules. Commonly used schedules are:• Schedule B (Form 1040) – Interest and ordinary dividends• Schedule C (Form 1040) – Profit or Loss from Business (Sole proprietorship)• Schedule D (Form 1040) – Capital Gains and Losses• Schedule E (Form 1040) – Supplemental Income and Loss• Schedule F (Form 1040) – Profit or Loss from FarmingFor business tax returns, a business may choose to report taxable income either on a calendar year or fiscal year basis. Commonly used forms include:• IRS Form 1065 – U.S. Return of Partnership Income• IRS Form 1120S – U.S. Income Tax Return for an S Corporation• IRS Form 1120 – U.S. Corporation Income Tax ReturnWhat factors show the strength of your borrowing ability?Having a favorable debt-to-income ratio and credit score. A strong credit history shows lenders your ability to repay debts and utilize credit responsibly.Staying organized. Keep expenses separate if you have multiple income sources, and separate business and personal accounts so that lenders can more easily tell which assets are which.Having additional support, especially for closing. Certain factors may lower your risk for lenders, like utilizing a co-signer or borrower or paying a higher-percentage down payment than what's required.What's next?If you are self-employed, there are methods available to help make your goal of homeownership a reality. For example, eligible self-employed borrowers with Wells Fargo may have access to a variety of loans, such as VA or FHA loans or Wells Fargo products like Dream. Plan. Home. and the Homebuyer Access grant. Information can be found online about the eligibility requirements and personal tax implications of these products.Talk to a home mortgage consultant to learn more about what your mortgage process may look like. Also, check out Wells Fargo's home lending portal for personalized rate quote tools and for its content library featuring helpful articles. These can be found at https://www.wellsfargo.com."While self-employment makes obtaining a mortgage a bit more complex, your lender will walk you through the process, step by step," says Rulon Washington, mortgage sustainability, Wells Fargo.Photo Credit: (c) PeopleImages / iStock via Getty Images Plus