Mortgage advisor Frank Christiano explains that being self-employed can make a significant impact on getting loan approval to buy a house. He cites an example of a married couple who had filed a certain number on their tax returns for 10 years and then experienced a substantial increase in income in 2022. He notes that if someone is self-employed for more than five years and has qualifying credit, and a down payment of 10% or 20%, then they only need one year of tax returns to run through the system.
According to Christiano, this means that the previous ten years where income was low do not have to be factored in, and only the most recent year of income can be used to calculate loan approval. However, if someone needs to factor in 2021 and 2022 and average the two years, it can affect their loan approval price point. For instance, if someone shows $40,000 for 2021 and $220,000 for 2022, the $220,000 income cannot be taken at face value because the previous year’s income must also be factored in. In this case, the income would be averaged, which would result in a much lower income of $130,000.
This example highlights how being self-employed can impact loan approval, as income fluctuations can affect how much money a lender is willing to lend. Additionally, self-employed individuals may have to provide more documentation to prove their income, which can also impact the loan approval process. Overall, Christiano’s explanation demonstrates the importance of understanding how being self-employed can impact loan approval and the value of working with a knowledgeable mortgage advisor to navigate the process.
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