If you’re looking to buy a home, you probably can’t afford to buy it outright. That means you’ll have to apply for a mortgage to pay off the cost over time—usually 30 years.
But if you’re self-employed, securing a loan isn’t easy. America is home to nearly 15 million self-employed workers—10 percent of the U.S. workforce—who earn money in their own business. While being self-employed brings flexibility and freedom from the corporate world, it makes the mortgage process tricky for millions of Americans.
Self-employed workers don’t receive a W-2 form, which tracks annual wages and withholding amounts. Therefore, lenders must rely on individual tax returns. This becomes a challenge because, while borrowers need to demonstrate enough income to qualify for a mortgage, they are also incentivized to lower their taxable income through deductions and write-offs.
For example, self-employed workers can write off depreciated office equipment, car leases, and airplane tickets if they’re related to the business. Even a ticket to a sporting event or pop concert can be written off, if it’s related to client acquisition or another business necessity. That means the net income reported on a tax return may not reflect a self-employed individual’s true earnings, complicating the process for a lender doing his or her due diligence.
According to Stephen Rosen, a certified public accountant in Florida, “You need to help the lender understand that the business is making more money than you’re showing.”
Therein lies the solution. If you’re self-employed and mortgage-hunting, it pays off to find a reliable accountant to make the case for you. Accountants aren’t cheap, but they can help you secure the mortgage you want.