Realizing that the tax deadline is approaching at breakneck speed, I started to think about the differences between receiving a W-2 and being self-employed. Employees have the luxury of showing their prospective lenders W-2s or pay stubs to secure a loan. Individuals who are self-employed have probably heard that it will be harder for them to get a loan versus an employee.
That isn’t always the case, however. Being self-employed is not a barrier to securing a loan with favorable terms. As long as a borrower can provide two years’ worth of tax returns that show increasing net income, it should not be a problem to get purchase money. The income does not even have to be all that substantial, if it has increased.
The key point is that lenders will look at the net income on the tax return, not the gross income. This is a particularly important fact to consider at this time of year. While it may often be in a self-employed person’s best interest to maximize deductions and show the least amount of net income possible, that strategy could definitely sabotage any effort to get a loan.
There are a number of additional methods for increasing your chances of securing a loan if you are self-employed:
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