I had a conversation recently with someone who was self employed and thinking about buying a new home. At the end of the conversation, it became pretty clear that he wouldn’t be able to “document” his income – which is not all that uncommon.
About 20 minutes after I had that conversation, I got a memo (man I hate these things, but I can’t ignore them because sometimes they have good information in them) from our corporate compliance department that anyone who is self employed should probably be aware of when applying for a mortgage.
ATTN ALL MANAGERS
It is extremely important tha tyou be aware that ALL self-employment MUST be disclosed on teh initial loan application, regardless of whether or not the income is being used for quallification.
If you have an applicant that is self-employed with more than one business, all self-employment from all businesses must be disclosed. You must disclose all income for self employed borrowers, not just the income that you used to qualify for the loan.
Any negative income from self-employment must be considered. For example, if you have a husband and wife applying for a loan. The wife is self-employed, but you think you don’t need to disclose her income because you are not using her income from her self employment to qualify for the loan. Wrong! The wife must disclose her self-employment and her income. If the income is negative, it will be subtracted from the other positive income being used for qualification purposes.
There is a form called the 4506T that states the lender will pull your tax records and compare them to what you declared as income on your application. This is only one of the reasons there is no such thing as a “stated income” loan anymore.
So if you are self employed, be sure to plan on putting all of your self employed income on your loan application — both positive and negative.