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How do you qualify for a USDA mortgage when self-employed?

June 12th, 2020 by Sean Stephens

How do you qualify for a USDA mortgage if self-employed in Florida, Alabama, Tennessee, or Texas?Qualifying for a USDA mortgage when you are self-employed can be both confusing and frustrating.

However, in today’s video, I will review a three-step qualifying approach which can help to both relieve anxiety and further explain the process.

Before we get started, please take advantage of our FREE tax return review service. This is a great way to have your self-employment income reviewed at the preliminary stages of the USDA qualifying process and is just another free resource we offer to help keep your financing headed in the right direction!

Qualifying for a USDA mortgage when self-employed

1. Know what self-employment documentation will be required

Per USDA guidelines…

“an applicant or household member is considered self-employed when they have a 25 percent or greater ownership interest in a business.”

How do you qualify for a USDA mortgage in Florida if self-employed?dFurther, when ownership is 25 percent or greater the following will be required:

  • Federal Income Tax Returns (filed and signed) for the most recent two consecutive years with all schedules. Plus, any applicable W2 forms.
  • If required for the ownership interest/business type, Federal Income Tax Returns for the business (filed and signed) for the most recent two consecutive years with all schedules.
  • Recent profit and loss statement (not required to be audited)
  • Confirmation that the business is operationally obtained within 30 days of loan closing.

2. Calculation of USDA self-employment income

As the USDA approved lender, we will be analyzing “the most recent two-year history of the business earnings.”

An additional review will be required for any drastic increase or decrease in self-employed income. This is defined as…

20 percent or greater variance for income earnings from the previous 12 months.”

While this is the general rule, please remember that different types of business structures will also require separate analyses. Such as those for Sole Proprietors, S Corporations, Partnerships, etc.

3. Can Business debts be excluded from your USDA debt ratios?

Per USDA, “Business debts (i.e. car loan) reported on the applicant’s personal credit report may be excluded from your USDA debt ratio if there is evidence that the debt is paid by a business account.”

“Acceptable evidence includes canceled checks or bank statements from the previous 12 months from a business account.”

Since we don’t have to count certain business paid debts against your USDA debt ratios, this has the ability to increase both your loan amount and what you can qualify for.

We Are Here to Help!

How do you qualify for a USDA mortgage in Sebring, Avon Park, Lake Placid FLIn summary, if you are self-employed and trying to qualify for a USDA loan do not let the paperwork overwhelm you!

We will help walk you through the qualifying process step-by-step.

Remember, just call or email to discuss your scenario and let us show you the “Metroplex” difference!

800-806-9836 Ext. 280
SeanS@MPLX.org

Let’s make it a great day, and I look forward to seeing you right here for the next tip of the week!

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