How To Calculate Self-Employed Income For Mortgage Loans

Turning your dream of being a homeowner as a self-employed person into a reality can be a lot more challenging, but not impossible. Self-employed mortgages do exist, and to qualify, you will need to work out your self-employed income. Stick around because this guide will show you how. 

What is Schedule C Income?

Your self-employed income is also called Schedule C income and refers to the income you report as a sole proprietor. Whether you’re a business owner, investor, entrepreneur, or freelancer, all your profits and losses will be reported on your Schedule C income part of your personal tax return.

You may be wondering why your income matters on your application if you have good credit, and that’s because lenders will use your income to determine your ability to pay. That’s why it’s important to accurately report your income.

How To Accurately Calculate Your Income

Reporting your income accurately may be more important than you think. Inflating your income is fraud and is punishable by fines or jail. If you underreported your income, you’ll have a harder time getting loan approval.

Because most lenders see stability as less risk, it is recommended that you show at least two years of self-employment income. To calculate your monthly income, use this easy formula:

• Start with your net profit before paying taxes for the two most recent years (can be found on the Schedule C section of your tax return)
• Add these two figures together
• Divide that figure by 24 to get your monthly income

During the application process of a self-employed mortgage, your lender will verify your income by looking at your tax returns and bank statements. Depending on the lender and the loan you’re applying for, you may need to provide profit and loss statements for the current year, 1099 forms, and bank statements. 

Boost Your Reported Income

If your reported income is too low, remember to take into account that you may have maximized your deductible expenses to lower your tax bill. To boost your reported income legally, you may be able to include other sources of income like:

• Investments
• Insurance payments
• Public assistance
• Alimony and child support
• Your spouse’s earnings
• Financial aid
• Employment earnings

Apply For a Self-Employed Mortgage in Florida

Are you ready to purchase your dream home in Florida? Our mortgage experts at Florida State Mortgage Group, Inc., can guide you through the process. Start your application today by calling us at (954) 359-3000.