How does being self employed work with loans?

JPowell · Joined: 20 Jan 2010 Posts: 103 Location: PA

I am "self employed" meaning I do freelancing and some independent contract work but I'm not sure what that is going to mean when it comes time to apply for home loans.

I don't get any 1099s, I operate under my own name not a business name and I've only been at it for a few months.

My proof of income is pretty much made up of my Paypal transaction records and transaction records from free lance sites as well... Is that going to be a problem?

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

Often they are going to want to look at your tax returns, so you may need to get at least one year done, so you can prove your income that way. There is reason to believe that showing "pay stubs" may be allowed in the near future, but in your case it is likely you will need at least one tax return as your proof of income.

EricJ · Joined: 09 Jan 2009 Posts: 321 Location: New Jersey

You are not in business long enough for a stated income loan. You need two years under your belt. However, it can be done in PA

JPowell · Joined: 20 Jan 2010 Posts: 103 Location: PA

Ah, I really don't want to have to wait a full two years of being self employed to be able to do it. That seems like it's ages away... I wish I'd realized how simple it was to freelance a year ago so I'd be closer.

My SO has been with his employer for over 2 years though if that would help the situation any.

Eric, when you say that it can be done in PA do you mean at any time or would I still need at least one tax return?

jhonny07 · Joined: 31 Jan 2010 Posts: 10

online jobs like freelancing don't require you to pay tax right?

johncollins · Joined: 26 Jan 2010 Posts: 7

jhonny07 wrote: online jobs like freelancing don't require you to pay tax right?

Sure they do.

EricJ · Joined: 09 Jan 2009 Posts: 321 Location: New Jersey

Jpowell

For a stated income loan, a lender will require you to prove that you have been in business for yourself for at least two years. They will not see your tax returns, but you need to have your accountant provide a letter stating you have been in business for at least two years.

When I said it can be done in PA, I was referring to stated income loans. It will also depend on WHERE in PA.

JPowell · Joined: 20 Jan 2010 Posts: 103 Location: PA

@Johnny, the definitely do. If you have an income, you should be paying taxes... It is true that some people choose not to claim their freelance income, but I think that's pretty low to do. I do plan to pay taxes on what I make.

@Eric when you "accountant" what exactly do you mean? I don't have an accountant because I'm not a big business. I keep records of my earnings through paypal since that's where all my payments are deposited. I do plan to use a tax guy when the time comes, does that qualify as an accountant?

TimtheMortgageGuy · Joined: 16 Jan 2008 Posts: 96 Location: Rosemount, MN

JPowell wrote: I am "self employed" meaning I do freelancing and some independent contract work but I'm not sure what that is going to mean when it comes time to apply for home loans.

I don't get any 1099s, I operate under my own name not a business name and I've only been at it for a few months.

My proof of income is pretty much made up of my Paypal transaction records and transaction records from free lance sites as well... Is that going to be a problem?

Yep, going to be a big problem. You don't have a long enough track record of being self-employed first of all. Secondly the only way to determine income is from Federal tax returns.

MrPink1130 · Joined: 11 Feb 2010 Posts: 17

I'm in.....2 years of full tax returns with the last year not seeing a drop in income from the first year/
doing it for 2 year is different then 2 years full tax returns

and yoou'll need to prove you've been doing it for 2 year by possible supplying 3 years of tax returns if you are a freelancer

EricJ · Joined: 09 Jan 2009 Posts: 321 Location: New Jersey

You NEVER supply tax returns for a stated income loan even if you are a freelancer. All you need is for your CPA to provide a letter stating that you are beein in business for yourself for at least two years. That is what is required by the lenders for proof.

MrPink1130 · Joined: 11 Feb 2010 Posts: 17

EricJ.....I'm not sure what lenders you are referring to, but this is the Fannie Mae/Freddie Mac require that 2 years full tax returns are required.....call Chase, BofA, Wells or Citi; that is there guidlines. It puts it on the CPA to do a lier loan now.

joe1 · Joined: 11 Nov 2008 Posts: 20 Location: California

You need to have been self-employed for at least 2 years, and the income the lender will use for qualification purposes is based on the bottom of your schedule C. Good Luck!