In the past, the ability to purchase a dream home required having a consistent income, which traditionally meant working a full-time job. But the definition of “job” has changed for many people in recent years and will likely continue to do so.
More and more people have become self-employed via the gig economy, or by starting their own business. Hence, they don’t always experience consistent income or enjoy the more traditional benefits of being a full-time employee. The good news is that this doesn’t mean self-employed people have to miss out on the dream of homeownership – they just have to go about the process a little differently.
Proof of Income
Typical full-time employees can easily show proof of income through their employer. With pay stubs and other documentation from an employer, lenders can verify a borrower’s income and history of income. Self-employed individuals, on the other hand, will need to rely on their own records to verify income. So, what are lenders typically looking for to verify the income of self-employed professionals?
- Income stability
- The financial strength of the person’s business
- The ability of the person’s business to generate income in the future
A lender will expect an explanation for a financial history with periods of little to no income (a common occurrence for the self-employed). Hence, because the income of a self-employed person can tend to be at inconsistent intervals, typically proof of income over a longer period of time is required of the self-employed individual versus the full-time employee buyer.
In addition to proof of steady income, a lender will likely also ask for documentation (emails or letters) from current clients, which serves to establish likelihood of the ability to continue to generate further income.
Other key documentation could include providing any state or other business license(s), DBA (doing business as) documentation, evidence of insurance for your business, or a record of a licensed certified personal accountant (CPA).