Loan options

Mortgage options for self employed borrowers in California

There is no single "self employed loan." The right program depends on how your income shows up on paper. Here are the main options, starting with the one that usually has the best rates.

Full doc with add backs

A conventional, FHA or VA loan using your tax returns, usually the last two years. This is where the best rates are, so it's always the first thing I check.

Underwriters don't just read the bottom line. They add back depreciation, depletion, amortization, business use of your home and some one time losses. For S corp and partnership owners, they look at your K-1, your W2 from the company, and whether the business can support the distributions. A return that looks too thin to you may work once it's read correctly.

Good fit if: your returns show steady or rising income, even after write offs.

Bank statement loans

Instead of tax returns, the lender uses 12 or 24 months of bank statements. With business accounts, your deposits are reduced by an expense factor, often 50% or less depending on the business, and some programs accept an expense ratio from your CPA or tax preparer. With personal accounts, deposits are usually counted at full value.

Good fit if: you write off a lot and your deposits are much higher than your taxable income.

Rates and down payment are usually higher than a conventional loan. I'll show you the real difference so you can decide.

P&L only and 1099 loans

Some programs qualify you on a profit and loss statement prepared or reviewed by a CPA, enrolled agent or tax preparer, without tax returns. 1099 programs use your 1099 forms, minus an expense factor, which works well for independent contractors, agents and consultants.

Good fit if: you have a strong recent year, or most of your income comes from a few 1099 payers.

Asset based loans

If you have significant savings, retirement or investment accounts, some programs turn those assets into monthly qualifying income. No job or business income needs to be shown.

Good fit if: you sold a business, retired early, or live off investments.

DSCR loans for investors

For investment properties, a DSCR loan qualifies on the property's rent compared to its payment. Your personal income and tax returns aren't used. Properties can close in your name or your LLC's.

Good fit if: you're building a rental portfolio and your returns show paper losses from depreciation.

What I'll ask for to get started

• Your last two years of tax returns, personal and business (or your 1099s or bank statements, depending on the program)
• A year to date profit and loss if we're past the first quarter
• Proof the business exists, like a license, CPA letter or Secretary of State listing
• Recent statements for the accounts you'll use for the down payment

Program terms, expense factors and limits vary by lender and change often. Not every borrower will qualify. This is general information, not a quote.