Tahoe is full of people who work for themselves: contractors, ski and outdoor businesses, property managers, real estate agents, consultants, and Bay Area founders working remotely. If that is you, you probably already know that your tax returns do not always tell the whole story of what you earn. I'm Kevin Darmody, a local Tahoe mortgage broker. Licensed in California; I lend on California properties only. Here is an honest look at your options.
Option 1: A Conventional Loan Using Tax Returns
Many self-employed borrowers can qualify for a regular conventional loan. Lenders generally look at your personal and business tax returns, usually for the past two years, and average your qualifying income. Some cases can use one year of returns, depending on the automated underwriting findings and how long you have been in business.
The challenge is that the lender uses your income after business deductions. If you write off a lot, your qualifying income may be lower than what actually comes into your account. Conventional is still worth checking first, because it often has the best pricing.
Option 2: Bank-Statement Loans
Bank-statement loans are non-QM loans, outside the standard Fannie Mae and Freddie Mac rules. Instead of tax returns, the lender estimates your income from your deposits, usually from 12 or 24 months of personal or business bank statements. Business-account deposits are typically reduced by an expense factor, or by an expense figure from a CPA or tax preparer, to estimate income.
Things to know:
- Expect a larger down payment and higher pricing than a conventional loan
- Requirements vary a lot by lender, including how long you have been self-employed, credit score minimums, and reserves
- Large or unusual deposits may need to be explained
- Some lenders also offer profit-and-loss (P&L) statement or 1099-only options
Because terms differ so much between non-QM lenders, this is where shopping across lenders through a broker can really help.
Option 3: DSCR for Investment Properties
If you are buying a rental, a DSCR loan may qualify you on the property's rent instead of your personal income. See our page on Tahoe short-term rental and DSCR loans.
What to Gather
To get a useful answer quickly, have these ready:
- Two years of personal and business tax returns, if filed
- 12 to 24 months of bank statements (business and/or personal)
- A year-to-date profit-and-loss statement, if you have one
- Proof of how long you have been in business (business license, CPA letter, etc.)
- Asset statements for your down payment and reserves
I will look at both the conventional route and the alternative routes and tell you which one actually makes more sense, including when a bank-statement loan costs more than it is worth.
Second Homes and Condos
Self-employed borrowers buying a Tahoe second home or condo face the same occupancy and condo-project rules as anyone else. See our second home and condo financing pages.
Frequently Asked Questions
Possibly. If conventional does not work with your tax returns, a bank-statement or P&L loan may use your deposits instead. Expect different pricing and down payment requirements.
Get a Straight Answer on Your Scenario
Fill out the short rate check / pre-approval form or call or text Kevin at (530) 363-1348. Send your scenario during the day and you will usually hear back that same evening with options. A full pre-approval usually follows the next morning once your documents are in.
Kevin Darmody, Mortgage Loan Originator, NMLS #1245250 | C2 Financial Corporation, NMLS #135622 | Licensed in California; California properties only | (530) 363-1348 | Equal Housing Opportunity
C2 Financial Corporation is a mortgage broker, not a direct lender. This is not a commitment to lend. All loans are subject to credit approval, underwriting, and property review; program guidelines vary by lender and can change without notice. Equal Housing Opportunity.