There are so many people in NC looking for homes right now that have a “side hustle.” They might bee working at Verizon, but during their off time, they are also Lyft Drivers. If they’ve done this for a few years, we might be able to use that additional income. So the questions we are going to tackle are for Self Employment Income Needed For A NC Mortgage.
Student Loan Debt and Mortgages
With Conventional loans, we have the opportunity to count loans that are in an Income Based Repayment Plan in the debt to income ratios at the lowest payment possible. With a FHA or USDA loan, this is not the case, they require 1% of the balance, or a fully amortized loan payment. For a VA Loans we can even count a zero (deferred) payment.
Why am I starting this conversation out with Student Loan Debt? Because most of the first time home buyers we are talking with who are also self employed in some fashion or other – also have Student Loan debt… so I figured I’d knock that out first.
Self Employment Income Needed For A NC Mortgage
A side hustle is different from a “traditional” part time job. A side hustle is a way to make part-time income on your schedule. It differs from a regular part-time job in that side hustles usually aren’t determined by hours. A part-time job may require you to work 15 to 20 hours a week, every week.
But side hustles are generally on a job-by-job basis.
Underwriters who are evaluating Self Employment Income needed For A NC Mortgage look at this income differently. You can contract to do some web design, for example, for a company’s website. Once that is done, you have no other obligations until you pick up the next side hustle.
FHA Underwriters will allow us to average 18 months of self employment, as long as there’s a steady income stream. Most other Underwriter’s require us to have 2 years or more of the income – and some require 2 years of tax returns.
Here’s what many of the companies we sell loans to are looking for:
“2 years of self employment history is required. Case-by-case exception for 12 to 24 months if self-employment is similar line of work as previous employment, training or education, and a solid work history prior to self-employment. Must provide most recent two years signed tax returns.”
In most of NC, IT professionals are treated as Self Employed. You help with the software needs to merge 3 companies together, then you move to the next project – generally working for a Temporary Agency. Even though you are working for an Agency, they are not paying you full time benefits (in exchange for making a substantially higher wage).
Underwriters who are evaluating Self Employment Income needed For A NC Mortgage, understand that the contracts are one time jobs – but there are so many of them available, you stay busy month in and month out. In that case, we have to document the hours, and we would want to see 2 years of work history.
For IT Professionals, you might be working from home, and writing off a portion of your expenses – but for the most part, we see very little write offs, which helps with qualifying power.
The problem with Airbnb or Uber type jobs is that you don’t have those strict hours.
It is generally easier to qualify someone who is a personal trainer at 3 gyms, than someone who was an accompanist and worked 14 hours one month, 28 hours the next, then 15 hours, then 20 hours… yes we can average the income, but there needs to be some consistency to it.
If the borrower is able to qualify with NON self-employment (like that job at Verizon), the Underwriter can disregard a “loss” on the secondary self employed position – on a Conventional loan.
In most cases of a “side hustle” type job, we will need to see your actual tax returns showing the Uber income(I use this as an example), which would be reported as self employment income. Bank statements or the “in app” Uber/Lyft statements would usually not be enough for us to prove your making enough self employment income to qualify for a mortgage. We need to see an actual P&L statement, which is what the tax return does… because, you likely write off mileage, or other expenses.
Additionally, your business needs to be licensed, or registered, or otherwise DOCUMENTED. Meaning, can I Google the name of your business and find you listed somewhere as a “real” business?? Many people just use their name as the official business name if you’re doing it as a DBA anyway and not a corporation or LLC.
Using Rental Income For a NC Mortgage
Some of the borrowers we are talking to have decided that their next “side hustle” will be from Rental Income. They are going to buy another primary residence, but keep their current house as rental property. A copy of the current lease will be needed in this situation. In this situation, where you are renting the property out immediately having lived in it – we are able to use only 75% of the rent to qualify you for your mortgage.
Homeowners soon will be able to count income they earn from Airbnb Inc. rentals on applications for refinance loans.
A new program from Fannie Mae Fannie Mae allows anyone who has rented out property on Airbnb for a year or longer to count some or all of that money as income.
Many Americans are renting out a room when their kids go away to college as a way to pay for said college! In years past, getting a statement from Airbnb showing income has been difficult, but now the company is providing better documentation that helps us in qualifying someone.
If you are a self-employed borrower interested in buying a home, please call us before you do your taxes. That way, we can go over all of your options
Often times the income you need for a mortgage is quite different from the income your Tax Accountant recommends you claim. Self Employed Borrower Calculations will allow us to add back in any one time expenses, and depreciation (for instance)… but in general, it makes sense that we must show enough income to qualify you for the loan 🙂
If you have more questions about Self Employment income needed for a NC Mortgage, please call us. Steve and Eleanor Thorne 919 649 5058.
I try and answer all questions :)