What do lenders look at when they are analyzing the income of a self employed borrower? The first rule of thumb is that you need to have at least 2 years of self employment history and income in order to use that income for mortgage qualifying purposes. You can get away with having less than two years if you have a larger down payment such as 20%.

Lenders will first review your Schedule – C or “Profit or Loss From Business” form from your filed tax returns for the last two years. They will start by looking at line 31 which is your “Net profit or Loss” amount. Then certain items from your expenses can be added back in to your income such as depletion, depreciation, car and truck expenses, business use of home, mileage depreciation, and amortization/Casualty Loss. Once your annual income for that year has been calculated, usually a two year average divided by 24 months is used to determine your current monthly income.

For more information on self employed mortgage qualification please contact me.