Self-Employed and Write Off a Lot? You Can Still Buy a Home. Here’s the Real Tradeoff.

You did everything right. You tracked your expenses, took your deductions and kept your income tax bill low. Then you applied for a mortgage and the lender said your income is too low.

You’re not doing anything wrong, and you’re not stuck. Self-employed buyers often qualify differently than they expect, because lenders measure income through their own program guidelines. The key is understanding how your write-offs fit into that picture — and talking with your CPA about the tax planning decisions that make sense for you.

Why Write-Offs Affect Your Mortgage

Lenders use qualifying income, which is calculated according to the applicable loan program and underwriting guidelines. For self-employed borrowers, that’s typically based on your business income from your tax returns, and certain allowable deductions may be added back when determining qualifying income. So while legitimate business deductions can affect how much income a lender can use, it isn’t simply the bottom line of your tax return. Your CPA can help you weigh the tax planning decisions that make sense for your situation.

Your Options

1. Qualify on your tax returns (Conventional, FHA, VA, USDA)

• Typically requires two years of self-employment history and tax returns. In some cases, one year may be considered, depending on the loan program and underwriting guidelines.

• Some lenders can add back certain non-cash deductions like depreciation, depletion and business use of home. Not all deductions can be added back, there are very specific guidelines when it comes to this.

• Rates and down payment requirements vary depending on the loan program and your qualifications

• Best for: borrowers whose reported net income already supports the payment

1. Bank statement loans (non-QM)

• Qualify using 12 to 24 months of business or personal bank deposits instead of tax returns

• Rates are generally higher than conventional loans, and down payments are often larger

• Best for: business owners with strong cash flow but heavy write-offs

1. Profit and loss (P&L) loans (non-QM)

• Income is verified with a P&L statement, sometimes prepared by a CPA or other certified professional

• Pricing and down payment requirements are similar to other non-QM programs

• Best for: newer or fast-growing businesses

1. Asset-based qualification

• Uses your savings and investments to help you qualify

• Best for: borrowers with significant assets and variable income

5. Add a co-borrower
A spouse or partner with W-2 income can strengthen the application. Their income and debts count too!

6. Wait and plan ahead
If you’re a year or two out from buying, consulting with your CPA and discuss how you can qualify for a traditional home loan. I would advise a conference between you, your CPA and lender for future success on your home loan.

Do the Math Before You Decide

Compare two costs side by side:

• Cost A: the added income tax you might owe, depending on the tax planning decisions you and your CPA make

• Cost B: the interest rate and down payment requirements of a non-QM loan, over the time you expect to keep the loan

Refinancing may be an option later, but it’s never guaranteed. Whether a future refinance works for you depends on your eligibility, the property’s value, the available loan programs and current interest rates and market conditions. It’s best to plan as if the costs of your current loan are what you’ll pay, and to treat any future refinance as a possible opportunity rather than a certainty.

What to Do Next

1. Pull your last two years of tax returns and your year-to-date P&L.

2. Talk to a loan officer who understands self-employed borrowers before you apply.

3. Ask your CPA how your tax planning decisions may affect your mortgage qualifying income.

4. Compare the total cost of each path.

Self-employed buyers are approved every day. The key is knowing your options early, before you shop for a home!

Erika Slayton, Senior Vice President of Lending, NMLS #76823. Phone: 210.219.7608. Email: Erika.Slayton@CCM.com.

CrossCountry Mortgage, LLC does not provide tax advice. Consult a tax advisor for further information.

CrossCountry Mortgage, LLC is an FHA Approved Lending Institution and is not acting on behalf of or at the direction of HUD/FHA or the Federal government.

CrossCountry Mortgage, LLC is not affiliated with or acting on behalf of or at the direction of the Veteran Affairs Office. Certificate of Eligibility required for VA loans.

Subject property and borrower income and credit must qualify to USDA guidelines.

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. CrossCountry Mortgage, LLC (“CrossCountry”) does not guarantee the quality, accuracy, completeness, or timeliness of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by CrossCountry. CrossCountry its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort, or other tortious action.

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