Self employed and would like to buy a house.

[Anonymous]

I'm self employed and I am currently renting but I'd like to buy a house.   I was employed in 2016 for part of the year but found a better gig that pays a lot more but it is contract work and so I don't have a salary or W2 and I pay self employment tax. 

2014 and before I was in training and made 40K per year.

2015:   I was in training (low paying residency for 6 months, no employment for 2 months then 4 months at a job with a W2.  Adjusted income was 6 digits.

2016:   I was with the same job with W2 for 6 months but I had started contract work in April with another company.  The new job produced so much money per hour and flexibility (I can work myself to death or work <1 hour per day) that I decided to stick with that one and the other job I quit in the summer.  total income was a lot higher compared to 2015 income.   I'm going to be able to wipe out all my credit card debt soon.  Experian credit score for mortgage is 730 and on the rise.

I'm looking at two possible windows of opportunity to buy a house based on when my lease ends.   About 4-5 months from now or about 16-17 months from now (after another 12 month lease).   I'd like to buy as soon as possible.

Questions:

I was told I had to get 2 years of income tax returns with the self employed job, is that true?  Do I just need to show 2 years of at least some kind of income?

If you are a mortgage banker and you know how the system works, what do you advise that I do?

[Anonymous]

They are going to want to see 2 years worth of your self employment income (in the form of tax returns) if that is your only income now. If you are a sole proprietor they will look at the Schedule C line 31 on your return.

[Anonymous]

Imscangel17,

My 2016 income tax return has 9 months of the self employment income.
My 2017 will of course has 12 months

Will that be enough or will they require another year on top of that?

[Anonymous]

That should be fine as long as you are happy with the income average that amounts to. They will average the past 2 years to determine your annual salary/income. I was in a similar situation where my 2016 income needed to be counted in order to get my income average high enough. I filed right when the IRS began accepting returns and surprisingly my transcript (what they will request to verify income) was available within just 2 weeks. We are scheduled to close the end of this month but hope to move up closing to the end of next week.

[Anonymous]

so if your net income for 2015 and 2016 is as follows

Net inc 2015 : $400 (line 31 of sch C)

Net Inc 2015: $30,000 (line 31 of Sch C)

Average Income : $400 + $30000 divided by 2 = $ 17,000 net income. ( i guess you cant buy house on 17k in income can you? ).

Now certain items like mileage deductions get added back ? how does that work in averaging? Assuming just 15k in mieage deductions for 2015 and 5k for 2016

is that good enough for USDA/FHA/Down Payment Assistance program Loans?

What are target incomes for FHA /USDA loans? for 2017

[Anonymous]

I just wanted to post an update.  

My financial adviser helped hook me up with a mortgage company that is offering me the chance for a pre-approval off of just one year of self employment income.   Interest is 4.85%, no down payment, loan max 500K, closing + prepaid together about 8-10 K.

This is a physician loan program.   Physicianloans.com rep told me that I needed 2 years of self employment income before they'd work with me but this company is only going off of one year.

So needing 2 years of self employment income as an aboslute rule is false, looks like it can be done off of just one year.

[StartingOver10]

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@Anonymous wrote:

I just wanted to post an update.  

My financial adviser helped hook me up with a mortgage company that is offering me the chance for a pre-approval off of just one year of self employment income.   Interest is 4.85%, no down payment, loan max 500K, closing + prepaid together about 8-10 K.

This is a physician loan program.   Physicianloans.com rep told me that I needed 2 years of self employment income before they'd work with me but this company is only going off of one year.

So needing 2 years of self employment income as an aboslute rule is false, looks like it can be done off of just one year.

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Some lenders can do one year, not all. 

[CrankyDave]

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@Anonymous wrote:

I just wanted to post an update.  

So needing 2 years of self employment income as an aboslute rule is false, looks like it can be done off of just one year.

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The loan officer at my own bank wanted three years of returns, which she averaged to get a figure for my general income. It definitely seems to vary. (I got pre-approved easily enough. Now moving on to the next steps.)

[Calidreaming]

Physicians and some other highly paid professionals are an exception to the rule.  Just about everyone else they will want to see two years of income.