Self-Employment can be exhilarating and liberating, as well as challenging, exhausting and unrelenting. The overriding good news is that it’s the one time in your life you’re guaranteed to be paid what you’re worth! Of the many challenges you’ll face, one of the greatest can be getting a mortgage.

Typically a self-employed borrower must have a minimum of two years in business, along with two years of tax returns reflecting sufficient taxable income to service their debts. In sum, a mortgage lender is looking for two years of stable employment and income. Notice that we stress sufficient taxable, or net income. That’s because self-employed individuals document and deduct a vast array of expenses, resulting in taxable income that’s often too low to qualify for a mortgage loan. (For example, home office expense, health insurance, continuing education, retirement savings, self employment taxes, depreciation, depletion, amortization, etc.). 

However, if you report and pay taxes on sufficient net income you are now eligible to obtain a mortgage with just your first year tax return, and a year-to-date P&L Statement. This applies whether you are buying or refinancing. 

This doesn’t mean that lenders walk into this with their eyes shut. Yes, we want to see stable income and employment, but there are additional queries and investigations. What’s the location and nature of the business? How strong is the demand for the product or service? How strong is the business financially and what’s the future outlook of the business?

In July of 2018 we arranged a mortgage for a client who started a medical billing practice in January of 2017. She had good credit and an excellent down payment. Before starting her billing practice she worked for a large medical billing firm for 21 years. In addition, she taught Medical Billing and Coding at a local college, to employees of the firm she worked for, and for a company that administers a Certified Professional Coder (CPC) exam prep course. During her 21 years at the large medical billing firm she had gotten to know hundreds of doctors, who knew she was an expert. She had also trained over 450 medical billers while teaching at the college and equipped hundreds more to pass the CPC exam.  Moreover, when she started her practice she specialized in physicians who practiced geriatrics (treatment of the elderly) because the first wave of Baby Boomers reached 65 years of age in 2011. 

So here’s the take away:

• When she started her business, although it was a new enterprise, it was not a new venture. She was doing the same thing she had done for over 20 years. 
• Her expertise, staying power, and respect within her industry was well established.
• She demonstrated the ongoing need and demand for her product by catering to doctors who specialize in geriatrics (treatment of the elderly). There are over 76,000,000 (seventy-six million) baby boomers born between 1946 and 1964.
• Her contacts include a vast network consisting of hundreds of doctors, coders, billers, students, former students who are now managers/supervisors, coding and billing teachers, hospital executives, clinic directors, etc. If necessary she could readily get a job or bring in new accounts by picking up the phone.
• Her first year net income, as a one person shop, exceeded $140,000. With the hundreds of people she’d trained over the years duplicating herself or scaling the business wouldn’t be difficult.
  
  Lenders understand that that many borrowers seeking a loan after one year in business won’t have this level of depth and experience. But before loaning a new business owner $800,000 to purchase an entry level home in Southern California, they’d like to know the business is what the old guys called a “going concern.” (An entity that’s likely to stay in business for the foreseeable future). They’d like to check the vitals. Was there research and forethought? Is there drive, vim, and determination to succeed with intelligence and hard work. If you have that, odds are, you can secure a mortgage after just one year in business. Yes.