For business owners and 1099 earners
Self-Employed Home Loans
Your accountant's job is to make your income look small. Then a bank uses that number to decide what you can afford. There are loans that do not work that way.
Here is the trap, and almost every self-employed person in Orange County is in it.
Your CPA does a great job. Equipment, mileage, home office, depreciation, phone, travel. Your taxable income comes out low, which is the point. Then you apply for a mortgage, and the lender qualifies you on that same low number, plus they average two years of it, plus they subtract anything that looks unstable.
You know you can afford the payment. The form says otherwise. So you get told no by someone who never looked at your actual bank balance.
The loans that fix it
Bank-statement loans
Qualify on money that came into your accounts, not on your tax returns. Typically twelve or twenty-four months of personal or business statements, with an expense factor applied.
This is the workhorse for business owners with strong revenue and aggressive write-offs. How bank-statement loans work.
Profit-and-loss only
For some borrowers, a CPA-prepared profit and loss statement can carry the file, sometimes with limited bank statements alongside it. Fewer lenders do it, and the requirements around who prepares the statement are strict.
1099 loans
If you are paid on 1099s rather than running a full business, some programs qualify you directly off the 1099 totals with an expense factor, rather than making you rebuild a business return.
Asset depletion
You have real assets but no tidy monthly income. Retirement accounts, brokerage, savings from a business sale. These programs convert a qualifying share of your assets into a monthly income figure.
DSCR, if the property is a rental
No personal income used at all. The rent qualifies the property. This is often the cleanest route for a self-employed investor. DSCR loans.
A digital HELOC, if you already own
If you have equity and want cash rather than a new first mortgage, a streamlined online HELOC can be a fast route, with lower credit thresholds than a traditional second. It keeps your existing first mortgage and its rate exactly where they are. Digital HELOC and HELOCs in Orange County.
Buy the building your business rents
Not a home loan, but often the best financial move a self-employed client makes. Owner-user commercial programs let a business that occupies most of a building buy it at leverage no investor would get. Commercial real estate loans.
A conventional loan might still be your best deal
I want to be straight about this, because plenty of people sell non-QM loans as though they were the only option.
If your business has two clean years, a stable trend, and add-backs like depreciation and amortisation that a normal underwriter can credit you for, a conventional or government loan will almost always beat an alternative-documentation loan on rate and on cost.
Alternative documentation costs more. Higher rate, often a larger down payment. It is the right answer when the conventional answer is no, not instead of asking.
So the first thing I do with a self-employed file is test the conventional route properly. Only if it fails do we go elsewhere. That is the actual value of shopping 175+ lenders rather than one bank's shelf.
What I need to see
- Two years of personal and business tax returns, if you have them
- Twelve to twenty-four months of bank statements
- A year-to-date profit and loss
- Your business structure and ownership percentage
- Roughly how long the business has been running
If your returns are ugly, send them anyway. I have seen worse, and I am looking for what can be added back, not for reasons to decline you.
Common situations I see in North OC
The contractor who had a great year and a terrible one. Averaging kills the file. Bank statements often do not.
The realtor whose commission income dropped in 2023. A declining trend stops a conventional file cold. There are programs that look at the last twelve months instead of averaging down.
The owner who just sold a business. No current income, significant assets. Asset depletion territory.
The person who has been self-employed for eighteen months. The two-year rule is not universal, and there are exceptions when the work history in the same field goes back further.
The couple where one is W-2 and one is self-employed. Sometimes the cleanest answer is qualifying on one income alone.
- Alabama
- Alaska
- Arizona
- California
- Connecticut
- Delaware
- District of Columbia
- Florida
- Hawaii
- Idaho
- Iowa
- Kansas
- Maine
- Maryland
- Michigan
- Minnesota
- Missouri
- Nebraska
- New Hampshire
- New Mexico
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming