The Problem with the Self-Employed Borrower

In today's times of economic uncertainty more and more individuals are taking the opportunity to create additional streams of income. I personally believe this is awesome. However, when looking to purchase a home there are several things that Self-Employed individuals should consider.

•1. Plan ahead. If you are entering the entrepreneurial world, be sure you set some short term and long term goals for yourself, so you can manage your income appropriately. If you are looking to buy a home in the next few years, be sure to read #2.

•2. The trouble with tax write-off's: One of the benefits to being self-employed is that you avail yourself to more options for reducing your tax liability, better known as write-off's. This can act as a double edged sword when it comes to applying for a mortgage. If you write off all of your expenses during tax season and later apply for a mortgage, whatever you have reduced your income by is what the underwriter's will use as your income. Ex. Let's say your first year in business you made $35,000 but the business expenses you wrote off came to $15,000, the income that an underwriter will use for qualification purposes is $20,000. We all know you can't buy much of a house on a $20,000 annual income.

•3. Hire a Professional Tax Preparer or CPA: Treat your business like a business and hire the needed professionals to help ensure your goals will be met. When tax season comes around, it may be better to hire a CPA and give them an in-depth look into what your goals are over the next year. This way they can help you take advantage of reducing your tax liability and still advise you, regarding your new home purchase in terms of how much you should write off or not.

•4. The Corporation: When financing your mortgage everything is about your paper trail. If your business is structured as a corporation, be sure to pay yourself. If the income that you receive goes directly into a corporate account, you need to be sure that you are paying yourself on a consistent basis. Otherwise, the underwriter will have too much to try and figure out. The harder the underwriter has to work, the more likely they are to deny your loan.

Taking a leap into entrepreneurship can be an awesome opportunity. However, plan ahead, getting professional help, and running your business like a business are all very important things to consider when you want to use this income for qualifying for a mortgage. For more information visit www.ceceliaknowsmortgages.com