USDA Home Loans: Documents for Self-Employment

For this part of the series, we’re going to talk a bit about being self employed or an independent contractor and how this plays into the USDA mortgage process. Because the USDA Loan Program is a government program with income eligibility requirements, showing what you earn from your business is a large portion of the process. The underwriter assigned to your approval will want to see things like tax returns for the previous 2 years, 1099’s, invoices, bank statements, profit and loss statements, and balance sheets.


I Don’t Have Pay Stubs, How Do I Show My Income?

The underwriter requires a few documents to show your income if you do not have pay stubs, which you may not if you are self employed. Some borrowers may have a business bank account alongside their own, while others just have one bank account for their personal and business expenditures. Either option is fine, as long as your income can be documented and shown. The underwriter will be needing two years of your most recent tax returns. Your tax returns must have all pages and additional schedules attached in order to be accepted. The income reported under self-employment income and any additional income will be directly compared to the other documents that are to be sent in as well. If you have 1099 Independent Contractor income, the reported income on your tax return must match the sum of your 1099s. If they do not, the underwriter will be looking for a detailed letter of explanation and/or source for the disparity.


Profit & Loss: Financial Documents for Self Employed Borrowers

Profit and Loss Statements are financial statements that may also be called an income statement. Profit and Loss statements show the revenue, the cost, and the expenditures during a specific period of time for a business. A profit and loss statement is usually an annual statement, but it can also be semi-annual, or even quarterly statements. If you are self-employed, most, if not all, lenders will require the most recent annual statement. The underwriter looks at the profit and loss statement for a borrower to see the “economical feasibility” of a company. This basically means the underwriter will be looking at the information about a company’s ability to generate income, as well as giving him or her an idea of the expenditures of a company. As mentioned before, if a profit and loss statement for 2018 is asked for, that information needs to match the information on a Tax Return for that same year. This means that if you do not receive W-2 forms from an employer, you will need to have the profit and loss statement be checked to make sure that it matches the tax returns. With this information, the underwriter can see if any taxes are owed, check if he or she has the tax payment plan or confirmation from you, or ask you for that tax documentation.


Balance Sheets: The Differences from a Profit & Loss Statement

Balance Sheets are very similar to Profit and Loss statements but also has different information. Balance Sheets basically report a company’s assets and resources. For larger companies that have shareholders that invest in the equity of the company, this information would also be on the balance sheet. The Balance sheet is a current year-to-date summary or snapshot of a company’s current financial capabilities. This financial information is current, so there’s nothing to really compare this information to besides business or personal bank statements showing the flow of money. As mentioned before, if you have a specific bank statement for your business, this statement would need to be sent in. Any deposits that are from this account going into your personal bank account will only need to be documented with a detailed letter of explanation.

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