Whether you’re contractor, owner-operator or street vendor, you CAN get approved for a mortgage. However while salaried worked can use w-2’s as proof of income, self-employed workers will need to show proof from other forms of documentation. Depending on your business, mortgage lenders will require certain documents from you to get an accurate picture of the creditworthiness. Remember, outside of credit scores, the key element for self-employed workers is to provide proof of income. With this in mind we’ll taken a closer look at what docs you will need to bring to the bank.
1. Tax ID number
A tax identification number, or EIN, is a nine-digit number assigned to legal citizens by the IRS for tax reporting purposes. Banks and lenders will require that self-employed workers to provide their tax ID. The number is used to obtain an applicant’s tax returns from the IRS to determine their financial situation.
You need Two Years of Proof of Income Tax Documents!
2. 1040 Schedule C (IRS form 1040)
This is a tax form that is filled by anyone who operates a business as a sole proprietor when filing annual income tax returns. The form shows the income of the business for the tax year and deductible expenses. Mortgage lenders use this form to evaluate a mortgage applicant’s income stability as well as the financial strength of their business.
3. Schedule E (IRS form 1040)
This is a tax form that reports income or loss from a rental property. It’s filled by people who receive income from real estate property. Mortgage lenders use this form to evaluate a mortgage applicant’s rental income stability.
4. Schedule F (IRS form 1040)
This tax form is filled by anyone who earns a living as a self-employed farmer. The form details a farmer’s income and expenses for the tax year. Self-employed farmers applying for a mortgage require this form as proof of income stability.
5. Form 1120S
This is a tax document corporations use to report their net earnings for a particular tax year. The form also provides details of the percentage of shares owned by each shareholder in an S corporation for the tax year. S corporation shareholders applying for a mortgage are required to provide this form for approval.
6. Schedule K-1 for business partnerships (IRS form 1065)
This is a tax document filed by members of a business partnership showing their share of the partnership’s profits, losses, deductions, and credits. If you’re a member of a partnership and you’re applying for a mortgage, you need to provide this tax document to lenders for evaluation.
7. Profit and loss statement
This is an income statement that sums up a business’s revenue, expenses, and net profit over a specific period of time, usually a fiscal quarter or a year. This statement gives lenders an overall picture of a business’s financial position and stability.
8. Business license
A business license is certainly one of the documents lenders want to see before they can approve a mortgage. A business license is a legal document that grants an individual the right to operate a business in a particular place. Lenders require this document for proof of ownership.
9. Comfort Letter from a CPA
Mortgage lenders may also need a written statement from a CPA also know as a comfort letter. The letter is used as confirmation of an applicant’s self-employment status, their income from self-employment, among other details.
10. Miscellaneous documentation
Often times, underwriters ask for more documents to prove your worthiness as a self-employed borrower. For example, proof of bond insurance. Bond insurance or financial guaranty insurance, guarantees scheduled payments of principal and interest to bondholders in the event the issuer defaults. Lenders may require that self-employed workers provide proof of bond insurance.
Even though all lenders have different requirements for all borrowers, this list is designed to give you an idea of what you are going to need to provide proof of income if you’re self-employed. Lenders consider employees income as less risky because they receive a 1099 or W-2 at the end of the year. For the self-employed hustler, your income is not provided by a trusted 3rd party.You provide it. Therefore, the bank wants to know if your’re being honest and upfront about your money. The documents above will assure the bank that you are in fact being honest.
LIKE. SHARE. COMMENT. SUBSCRIBE.