Traditional documentation
Conventional and government programs may use personal and business tax returns, K-1s, W-2s from the borrower’s own company, business returns and year-to-date financial information when required.
Self-employed borrowers
Being self-employed can make mortgage qualification more complicated—but not necessarily impossible.
Traditional mortgage underwriting often starts with tax-return income. Depending on the borrower and program, qualified self-employed borrowers may also have access to bank-statement, profit-and-loss or other approved alternative-documentation approaches.
Bank-statement programs
Certain non-agency programs may evaluate qualifying income using eligible personal or business bank statements rather than relying exclusively on tax-return net income.
Profit-and-loss programs
Some eligible alternative-documentation programs may permit a professionally prepared or otherwise acceptable P&L approach, subject to investor guidelines and supporting documentation.
Why self-employed income can look different to an underwriter
Tax deductions
Legitimate business deductions can reduce taxable income, which may also reduce qualifying income under a traditional tax-return analysis.
Business ownership
Ownership percentage, access to business funds, business liquidity and whether withdrawals could harm the business can affect how income and assets are evaluated.
Income stability
Underwriters may review business history, recent trends, year-to-date performance and whether income appears stable and likely to continue.
Documentation fit
The best program depends on the borrower’s real financial picture. Alternative documentation is not “no documentation”; it uses a different approved method to support ability to repay.
Documents that can help us evaluate the right path
For a traditional review
- Personal tax returns when required
- Business returns when required
- K-1s or W-2s from owned businesses
- Year-to-date P&L and balance sheet when applicable
- Recent business bank statements when required
For an alternative-documentation review
- Personal and/or business bank statements for the required period
- Business ownership documentation
- Profit-and-loss statement if applicable
- CPA/accountant documentation if required by the program
- Documentation of funds to close and reserves
Program eligibility varies. Bank-statement, P&L and other alternative-documentation programs generally have their own credit, down-payment/equity, reserve, property and documentation requirements and may carry different pricing than standard agency loans.
Own a business and not sure your tax returns tell the whole story?
We can review the available documentation methods and explain which ones may realistically fit your situation.