Self Employed and Buying a Home or Refinancing

This subject is not touched on often enough when people decide to take the leap and start a business. Being on your own is scary and usually the first couple years can be "investment" years, meaning you put more into your business than you're receiving.

What does this mean for purchasing a home or refinancing?

Lenders must analyze whether the business is steady enough for them to feel confident in loaning to you, as opposed to just looking at W-2's. Giving money to a self employed person vs someone with steady, "guaranteed" (lol) income is seen as higher risk.

Whether or not that's actually true is beside the point today. But here is what you need to know as a self employed person:

1. Two years of tax returns are required, both years are averaged to analyze adjusted gross income. In other words, they are ideally two GOOD years.

2. Often they will ask for year-to-date financials which can be put together by your bookkeeper but always also run by your CPA.

3. They will add back things like, depreciation, amortization, interest and taxes.

4. They use a debt-to-income ratio which considers household income (for those who are married)

5. Finally, ALWAYS keep your CPA in the know.

They should know about these goals when they are working closely with you. What often happens with a high volume firm is that they'll talk once a year, take your numbers, write off whatever they can - and it can make it really difficult to get financing.

As a CPA, I look at the whole picture and what you are wanting to do. In business and in personal life. Is that foreign to you? Let's chat.