How do we really qualify a Self Employed Borrower?

Roswell Home LenderOne of the Keystones to qualifying a home buyer for a Mortgage is proving Income.  I received a  call from one of my realtor referral partners this week and they asked me about a 1099 borrower.  The borrower had a Pre-Qualification letter in hand that stated he was qualified for a purchase up to $175,000.  She had the fore thought to ask him if he was paid on a 1099.  He said yes.  He had only been out of the Military for 2 months, so he only had 2 months income on a 1099.  A 1099 income borrower is considered Self Employed, and being so, must have 2 years history of self employment.  Bottom line, he had no usable income in the eyes of the mortgage world.

With that in mind, I wanted to provide you with a couple of questions to ask your clients to make sure that they have been properly Pre-Qualified to purchase a home.

  1. Are you self employed?
  2. Are you paid 1099 or W-2 and Paystub?
  3. Do you currently own any rental property?
  4. If the answer to either of those questions is Yes, Ask if they provided any of the following information to their lender:
    1. 2 Years Tax Returns(have you been in business 2 years?)
    2. K-1’s from a business return
    3. Proof from the Secretary of State that you have a corporation
    4. A business License for the last 2 years

If they have not at least provided the last 2 years tax returns to the Loan officer for review, then there is a chance that they may now qualify for a mortgage.

Hope this Helps!

Dan McKenzie
Managing Partner, Options Mortgage Services