Self Employment Tax Liability Versus Credit Worthiness Cunundrum

Howard Dyal, President and Principal Broker, Prodigy Home Loans
 
According to CareerBuilder, the United States has an estimated 10 million self-employed jobs; that represents 6.6 percent of all jobs reported. Self-employment offers many advantages over the typical 9 to 5 work and a lot more freedom.  However, when it comes to getting approval on a home loan, self-employment can be tricky.
 
Lenders are often reluctant to extend credit to self-employed workers.  Why?  At one time, buyers could self-report their income on personal financial statements. Unfortunately many lenders got burned because too many people over-stated income in order to get approved for home loans they could not truly afford. Now lenders require at least two years of tax returns to calculate a self-employed buyer’s average net income. 
 
Self-employed workers typically report gross income minus expenses to come up with their taxable net income.  The more allowable deductions they have, the lower the tax liability. While this is advantageous from a tax standpoint, it can be detrimental from a credit standpoint.
 
At Prodigy Home Loans we are experienced at helping the self-employed overcome the tax liability versus credit worthiness conundrum. We work closely with our lenders to ensure that certain deductions, like depreciation for instance, are considered.  In some cases we also may be able to use one year’s tax returns to document income which represents the most recent income data available.
 
Contact us today to discuss your situation.  One of our experienced loan professionals will be happy to help you.  

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