Are you self-employed and wondering if you can qualify for an FHA Mortgage?
You probably can if you fit within a few simple guidelines. Here is a summary of what a lender will look at:
Business has been in existence for at least 2 years
The first rule of thumb is that your business need to have been in existence for at least 2 years. This means that if you have an LLC, for example, the LLC must have been formed at least 2 years prior to closing, and you must document this with articles of organization. If your business has been around for less than 2 years, you may still qualify if the business has been in existence for more than one year, but less than 2 years if you can document that you were doing the same thing as a sole proprietor or working for someone else prior to starting the business.
Documenting Income
The lender will look at your bottom-line income after all expenses. Anything which was not an "actual" expense such as depreciation, can be added back to your income. The lender will look at the expenses that you deducted on IRS form 2106 of your personal returns if you do not file separate business returns.
Income will be calculated in this manner for the past 2 years, and a 24 month average will be used for qualifying. Income calculations can be tricky, so it is very important that you work with an experienced broker who can deterime up-front if you qualify.
Declining Income
If your income shows a consistent decline over the past 2 years and year-to-date, it will be difficult to qualify because the underwriter will be skeptical that your income will continue at current levels in the future.
