With so many American's being self-employed this can create issues since self-employed workers don't receive a W-2. In this case the lender has to consult tax returns to verify the applicant's income. This can cause issues because self-employed applicants lower their income by taking deductions and write-offs, which they can do. For this reason net income reported to the IRS may not be an accurate reflection of business earnings. In an article the Wall Street Journal wrote they suggested you find a good accountant who can explain business cash flow to a potential lender and find a lender with enough experience to understand a self-employed applicant’s tax return.
If you are self-employed discuss this with your Realtor who can usually put you in touch with a Lender.
This blog is an excerpt from an article written by Mea Danigelis with McLean Mortgage.