- Borrowers need to be self-employed for at least two years or longer
- The income used will be the average of the past two years of the adjusted gross income
- The income needs to be the same and/or increasing
- Declining income will be scrutinized and under review
- The mortgage underwriter may ask for the business license of the borrower’s business
- Mortgage underwriters will check for the business listing online to verify the physical location
- If the business is a home-based business, documentation will be required
- CPA letter may be required for audited financials
Both the individual and business tax returns will be underwritten if the borrower owns 25% or more of the business.
HUD Self-Employment Guidelines And Requirements
Borrowers need to meet the minimum HUD Agency Mortgage Guidelines.
Here are the minimum FHA Guidelines to qualify for self-employed mortgage loans:
- The borrower needs to have a minimum of a 580 credit score on 3.5% down payment FHA home purchase loans
- Borrowers with under 580 FICO down to 500 credit scores may qualify for FHA loans if they can put a 10% down payment on a home purchase
- Need to be in business for at least two years without declining income
- Two years of federal income tax returns with all schedules
- May require a profit and loss statement for the year to date
- Transcripts directly from the IRS
- IRS Tax form 4506, 4506T, or 8821
- There is a two-year waiting period after Chapter 7 bankruptcy
- There is a three year waiting period after a foreclosure, deed in lieu of foreclosure, short sale to qualify for an FHA loan
- Outstanding collections and/or charged-off accounts do not have to be paid off to qualify for an FHA loan
- Borrowers in a current active Chapter 13 bankruptcy repayment plan can qualify for an FHA loan one year into the payment plan with Trustee approval and manual underwriting
- No late payments during Chapter 13 bankruptcy repayment plan
- Chapter 13 bankruptcy does not have to be discharged
- There is no waiting period after Chapter 13 bankruptcy discharged date
- Chapter 13 bankruptcy that has been discharged but not seasoned for two years needs to be manually underwritten
- Gustan Cho Associates Mortgage Group are experts in manual underwriting
If the borrower has a one-time large write off expense and it will not reoccur, that one-time large expense can be waived. If the borrower has a significant declining income the most recent year, the mortgage underwriter may disqualify the borrower’s income altogether.
Challenges With Qualifying For FHA Loan Being Self-Employed
One of the biggest challenges in qualifying for an FHA loan being self-employed is lenders require at least two years of seasoning.
- Two years of income tax returns are required. No significant declining income
- One of the greatest benefits of being self-employed is you can write off many business expenses to save money in paying taxes
- Unfortunately, this is not good when qualifying for a mortgage
- One solution to offset the low adjusted gross income is adding non-occupant co-borrowers
- HUD, the parent of FHA, allows the main borrower to add as many non-occupant co-borrowers to the mortgage
- To qualify for a 3.5% down payment FHA loan with non-occupant co-borrowers, the non-occupant co-borrower needs to be related to the main borrower by law, blood, or marriage
- Non-occupant co-borrowers not related by law, blood, or marriage can be added to the FHA loan
However, if the non-occupant co-borrower is not related to the main borrower, a 15% down payment is required per HUD Guidelines.
Options For Self-Employed Borrowers Who Declare Low Adjusted Gross Income
FHA loans are very popular for homebuyers due to the low down payment requirements and lenient credit guidelines. For 3.5% with a minimum of a 580 credit score, homebuyers can be eligible for an FHA home purchase loan. FHA allows the main borrower to add non-occupant co-borrowers. If the self-employed borrower’s income is low, they can explore the option of adding non-occupant co-borrowers to the loan. There is no limit on the number of non-occupant co-borrowers to be added to the main borrower. Another option for self-employed borrowers is exploring a different loan program. GCA Mortgage Group offers bank statement loans for self-employed borrowers. There is no income tax required. Borrowers’ 12-month bank deposits are averaged over the past 12 months. The average deposit in the past 12 months is used as the monthly income. Withdrawals do not matter. However, instead of a 3.5% down payment, the down payment required is a 20% down payment. Self-employed borrowers who need to qualify for a mortgage, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.