The way a self-employed person counts his (or her) income is not the same as the way a lender calculates it. It’s not unusual for a self-employed individual to say he makes a six-figure income and then find out that only $60,000 will count. This is a blow that knocks him out of qualifying for the house he desires. But I have good news! There is now another option. I’ll explain.
Smart CPAs are hired to find all legal tax deductions. This is great when facing the IRS, but when all those deductions reduce the adjusted gross income severely, it can derail your goal to buy a home. Usually, the self-employed person finds this to be unfair and nonsensical. I can’t say I blame them, but the government sponsored agencies, Fannie Mae and Freddie Mac, have their regulations set in stone.
Another Source of Money Comes to the Rescue
Now there are lenders who will accept cash flow as an alternate way of looking at self-employed income. If the money comes into your bank account, then it counts. Expenditures are not subtracted.
Simply add up all deposits for 24 months, then take the average. That is your income on the “bank statement income program.”
Where to Get This Loan
The way to get this program for self-employed buyers is through a mortgage broker or full service mortgage lender. You will not find it at a bank or credit union. I work for a full service mortgage lender, Envoy Mortgage. I am licensed in California and Washington states. However, there are branches of Envoy in most other states, if you live elsewhere.
You want to ask the loan officer, “Do you have the bank statement program for self-employed people?”
If you have any questions, please let me know, and I’ll do my best to answer.