How do you qualify for a USDA Loan if you are self-employed?
How can a self-employed person qualify for a USDA loan?
While it is true that self-employment requires extra steps when qualifying for a USDA loan, in today’s video I will explain the details on how it can be possible for a self-employed person to qualify for a USDA loan.
Income qualifying for a USDA loan is critical, so if you have been previously denied, feel free to take advantage of our free 2nd opinion service. This is a great way to get a complimentary expert 2nd opinion and see if we can keep your financing on track.
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In regards to length of employment, USDA states the following:
“Income from self-employment is considered stable and dependable if the applicant
has been self-employed for two or more years.”
Additionally, “An applicant with a 25 percent or greater ownership interest in a business is considered self-employed for the purpose of calculating repayment income. The business may be a sole proprietorship, a partnership (limited or general) or a corporation.”
USDA Required Self Employment Documentation
While this is not an inclusive list, here are items to be prepared for in advance:
- Signed and dated individual tax returns, plus all applicable schedules, for the most
- recent two years.
- A year to date profit-and-loss (P&L) statement and balance sheet (not required to
- Signed copies of the Federal business income tax returns for the last two years,
with all applicable schedules, if the business is a corporation, an “S” corporation,
a partnership, or a limited liability corporation.
- When additional income the applicant draws from the applicant’s corporation,
partnership or S-corporation is utilized for repayment income, additional documentation
is required to verify the applicant has a legal right to the additional income.
USDA Calculation of Self-Employed Income
Per USDA Guidelines: “The lender’s calculation of a self-employed applicant’s average monthly income must be based on a review of the applicant’s complete individual federal tax returns (Form 1040) including W-2’s and K-1’s (if applicable). Additionally the applicant’s complete business tax returns (Forms 1120, 1120S and 1065), when applicable must be analyzed.”
Remember, this calculation will not be based on gross commissions before deductions!
Other common income sources which require additional review and analysis
While not technically self-employed, W2 employees who receive commission or bonus type income will also have to show a two year history of receiving this type of income along with that income being likely to continue for the next three years in order use that income for qualifying.
However, remember that converting from self-employed to a W2 employee can be possible without waiting a full two years!
In summary, while many banks and lenders may shy away from this type of loan due to the complex nature and experience that it requires, you can see that with proper analysis and documentation it is possible to qualify for a USDA Loan if you are self-employed!
Just call or email to discuss you scenario and let us show you the “Metroplex” difference!
(800)806-9836 X 280