Fight the Bias: Getting a Mortgage When You Are Self-Employed

As a tax CPA, former banker, and financial services expert; I know first-hand the challenges of applying for a loan. It’s even more difficult when you are self-employed because instead of validating your income with a Form W-2, the mortgage lender must first understand your federal income tax return. This is no simple thing. And, if you are self-employed and have a good tax adviser, the chances are you will be reporting the lowest taxable income possible under the tax law – that’s how we try to do it for our self-employed clients in order to minimize their tax burden.

As a result, the tax return analysis for the mortgage lender becomes an obstacle; which turns into a natural lending bias against self-employed individuals. In fact, a few weeks ago I was talking with a dermatologist who had recently left her W-2 position. She was evaluating her options and not sure what her next move was going to be. Should she start her own business? Or find a new employer?

Since she was also seeking to buy a new home she asked her mortgage broker for advice; who insisted it was better to become a W-2 employee again. However, this advice failed to consider her other goals and professional objectives, and also failed to realize or appreciate the tax advantages of being self-employed. Why can’t mortgage lenders better understand the tax benefits and cash flows of self-employed borrowers?

Why not talk to an accountant?

If you are self-employed or thinking about it, we can help you address the important questions and consider your unique circumstance. How much money do you have? How much do you need? How much do you need to spend to start your business? How long until you get your investment back? When do you want to be in the house? When will you have enough for a down payment? What difference would it make if you have less than 20% to put down (and thus have Primary Mortgage Insurance – or PMI – on the loan)? What if you can get the full 20% down? How does it all play together today, tomorrow, and 5 years from now?

The nice thing about working with an accountant on this is it is not about us – it is only about you. We have no bias in the situation and can take an objective look at the numbers to help you determine the right plan for you, in the right order.

Every situation is different. For one person the recommendation might be to work as an employee for the security it provides, but the next person might be in a solid place to start their business and get a home. We never know until we dig into the numbers – and this is something our team loves to do!

If you are self-employed and trying to get a new mortgage loan or financing for your business, or if you are considering starting a business (even if you are not looking to buy a home) and not sure about your numbers, come talk to us. As CPAs with in-depth lending experience, we would love to help you feel comfortable and confident in whatever path you take while achieving your dreams.

Ellen Sas

Ellen Sas

Ellen graduated from the University of Washington, became a CPA and soon was a successful business leader. She served as the CEO of two independent community banks, as the Chief Risk Officer of a $5 billion commercial bank, and as a special consultant to more than a dozen community banks. In 1999, Ellen was one of the youngest female audit partners in the audit practice of the firm currently known as RSM McGladrey. Ellen is now the managing partner at Hauser Jones & Sas. She carries an impressive record of experience, background and credentials within our credit union practice. She also leads our financial services consulting group (Sync Financial Partners).