If an individual has self-employment income, it can be used to qualify for a mortgage. However, an applicant should be ready to show a strong track record of earnings that spans at least two years. Furthermore, applicants should also understand that lenders may average their income over the past two years, which may complicate efforts to obtain a home loan.

Why Is Income Averaged?

Lenders will use the average earnings of a self-employed person over the past two years when determining their qualifying income. This means that if an individual earned $50,000 and $100,000 over the past two years, a lender would use $75,000 as their qualifying income. Proof of income would come from tax returns or bank statements. It is important to note that other sources of income such as wages from another employer can also be included.


What If a Company Is Incorporated?

If an individual runs a company as a corporate entity, he or she will generally receive a paycheck like any other employee. Therefore, an applicant would use the W-2 that he or she received as proof of income. Information provided on this form could be used to determine whether an applicant is eligible for government-backed loans.

As opposed to those who operate as sole proprietors, income earned from a small business or traditional corporation isn’t subject to yearly averaging. Therefore, if you earned $100,000 in the past year, that will likely be your qualifying income.


Gather Your Documents Organized Early

The moment that you decide to start house hunting is the best time to get your financial documents in order. The more information that you can provide to a loan officer in Las Vegas, the easier it is to determine your eligibility for a home loan. By getting conditionally approved for a mortgage, it allows you to make stronger offers to sellers and increase the odds that they are accepted.