Being your own boss can come with a host of perks such as setting your own dress code (read: pajamas), a flexible schedule and a cubicle-less existence. But one financial benefit — tax write-offs — morphs into an ugly disadvantage when self-employed workers try to get a mortgage. It’s not impossible to get a mortgage when self-employed, but it definitely requires advanced planning or stepping outside of conventional financing.
There are almost 9 million self-employed people in the United States, representing about 6 percent of nonagricultural workers, according to the U.S. Bureau of Labor Statistics. Many of these people earn a good living but find it hard to qualify for home loans. Borrowers typically have to provide two years’ worth of tax returns, which often don’t accurately reflect the take-home pay of self-employed people.
“How we qualify self-employed doesn’t always agree with how the IRS says you can run your business legally,” says Pava Leyrer, training and development manager at Northern Mortgage Services in Grand Rapids, Mich. “So they are finding it harder to get a loan unless they want to show more income to the IRS. It’s a fine balance.”