Providing Proof of Income for Self-Employed Homebuyers

May 30, 2022

Buy a home with no proof of income

Building a freelance enterprise or building a small business from the ground up is no small feat. We love working with clients who have discovered success in their field despite the difficulties of the modern economy, not to mention all of the sleepless nights that come with that uncharted territory. If you are self-employed and want to buy a new home, the best way to begin the lending process is to show the value and stability of your income.

For someone working for an employer at a fixed rate, providing proof of income is usually as simple as showing your most recent W2. However, for those who work freelance or own their own business, securing a loan for a home or rental property may be more difficult, as many financial institutions have additional requirements for those with less predictable incomes.

Unfortunately, getting a personal loan with no proof of income isn’t merely unlikely; it won’t happen without a bit of paperwork. So once your self-made career takes off, what can you do to prove your readiness to take on a mortgage? Here’s how to provide proof of your income and maximize your chances of securing your next home loan.

What Is Proof of Income?

Put simply, proof of income is the documentation of your personal finances during a set period of time. Like a pay stub, proof of income for a self-employed individual will include your earnings. But they should also include any expenditures and monthly payments, as this will provide a clear picture of your complete financial situation.

Why Do I Need Proof of Income If I’m Self-Employed?

Providing proof of your income is something that everyone has to do, whether they be full-time, part-time, freelance, or own a small business. The real difference between proving your income when employed and proving your income when self-employed is that it is now your responsibility to put the paperwork together. Lenders want to see that you are not only making enough money to pay the monthly mortgage, but are also financially secure for the foreseeable future. Being self-employed often means unstable income. The more comprehensive information you can provide to your lender about your level and pattern of income, the more they will feel at ease when deciding to loan to you.

Proving your income as a freelancer or business owner will be vital to almost every aspect of your work, especially when it comes to tax season. By staying organized and concise when reporting your gains and losses to the IRS, you may find it much easier when dealing with banks and lenders. In fact, instead of dreading tax season, take advantage of it, especially if you want to apply for a home loan in the near future. Not only will your well-organized financial records give you a better chance of securing the loan, you’ll be able to kill two birds with one stone by doing all that organizing just once.

What Documents Can Help Me Prove My Income?

If you work for yourself, you won’t have access to a W2 or a pay stub like an employee at an established company. Quarterly or yearly federal and state tax documents are usually required for someone to demonstrate sufficient finances, such as 1099 forms. Along with bank statements, these are the best documents to provide a lender. In addition to official documents, you might also take advantage of financial software to calculate your business’s profit or loss statements. The pros of keeping track of every dollar that comes in and out of your pocket far outweigh the cons, especially if you choose to apply for a home loan between tax seasons. You may even consider hiring an accountant (either short-term or long-term) to help add the numbers together, as this will provide your financial statements with added credibility and greater accuracy.

How Do I Calculate Self-Employed Income?

If you do own a small business, then it’s likely you are used to accounting for every dollar you earn or spend. For freelancers looking to afford a mortgage, you should definitely start keeping track of these daily figures. It’s as easy as going through your bank statement and tracking your total revenue and expenses. You can calculate your total income monthly, quarterly, yearly, or (if you have the time) biweekly like a regular paystub. 

Contact the Experts at Robus Mortgage In Salt Lake City, Utah

Are you ready to buy the house of your dreams? Whether you are employed or self-employed, Robus Mortgage has the expertise and loan options to make the home buying process easy. If you have any questions about what financial information you need to prove your income, feel free to give our Salt Lake City office a call at (801) 590-4499. 

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