Self-employment and Mortgage loans?

[Anonymous]

I know that we are about a year away from even trying to apply for a mortgage. My DH has ok credit EQ 676 and TU 650. My score are horrible EQ 571 and TU 52something. My question is my husband own's his own business just opened Jan of this year. He is sole proprietor(sp) and has no employees, what exactly will we need when we do try to apply for a mortgage. From what I am gathering doing my own research online, he will need bank statments for a year and a profit/loss report from an accountant. I was just wondering if he will need to be in business for over x amount of years or if we will need anything else. I have read online that it can be hard to get a mortgage loan if you are self-employed. Thanks.

[Anonymous]

for sele empoyment he will need 2 years of tax returns and they will average that income.  Be very carefule what he uses as write offs as he will only get credit for reported income, not cash flow through the business.  So write-offs now will make it much harder to get the loan.  Also remember that most businesses usually start off slow and build up over time.  You will not likley be able to use the full income he is making at the beginning of 2011 if his income now is lower.  They will average the 2 years taxes.

[Anonymous]

Is that 2 years of tax returns from being self-employed? Wow! He is making more now being out on his own then he was working for someone.  Wonder if they would use the previous year tax return (employed by someone else) and then this years self-employed tax return.....

Thanks for the answer!!

[rockymtngrl]

no, unfortunately they won't use that. It has to be 2 years of self employed, then combined and averaged. If there is a big difference in the 2 years they will use the lower number. (I'm self employeed too). Thing to remember is the number they will use for income is line 12 off of the 1040. So be very careful with write offs, they can definetly hurt you when going for a mortgage.