First Time Buyer: Buying A Home As A Self Employed Person
I knew buying a home was a very long drawn out process especially when it came to the paperwork and getting to the closing table. What I didn’t know was all of the extra paperwork and steps that were needed for self employed people who were buying a home. I purchased my first home in the summer of 2022 and I am sharing with you tips on how to prepare for your home buying journey along with the paperwork you absolutely need in order to purchase a home as a self-employed person. I’m not sure what paperwork is needed if there are two people on the mortgage. I am only sharing my experience. I am not a real estate agent, real estate broker, or loan officer. If you have additional questions I advise you to talk to a professional.
If you’re looking to purchase a home here is the paperwork that is required:
Profit & Loss Statements: I use QuickBooks. They have book-keepers who will manage books and provide monthly statements. Your profit and loss statements show the money coming in and going out of your business.
2 Years Of Taxes: I used to file my own taxes using Turbo but I hired an accountant this year because my business revenue increased significantly and I wanted to make sure I was taking advantage of tax breaks and filing things properly. The one thing I don’t want are IRS problems.
3 Years Of Tax Transcripts: Literally days before closing the lender requested 3 years of my tax transcripts. I didn’t even know what tax transcripts were. Thankfully I had an accountant who was able to assist. Tax transcripts are records of your past tax returns according to HR Block. This is why it’s important to file and pay your taxes.
Bank Statements: It is important that you have separate accounts for your business and personal. Mixing funds will only raise red flags. When money is moved from one account they want to know where it came from and why it was deposited. For example, I get many deposits from Stripe. The loan officer emailed me asking me, “What is Stripe.” My response was, “Stripe is a payment processor similar to Paypal.” When I went to close my exact answer was on my paperwork. The lenders document everything because when they get audited they want to protect themselves from penalties. So again, be sure to document everything.
Ultimately, your paperwork will prove to the lenders if you’re able to pay back the loan. So it is very important that you document everything. Trying to hide money from the IRS will only cause you to hit roadblocks especially when it comes to being able to qualify for a loan, government funding such as the PPP, and even grant money.
Who do you need?
Accountant: According to the BLS Accountants handle financial records; however, from my experience all accountants don’t do everything. Meaning some accountants do not work with business owners. My accountant filed my taxes and helped me with my paperwork needed to close on the house. The crazy part is that I was introduced to her right before I started looking for a house. She literally came at the perfect time.
Real Estate Agent or Broker: Is someone who represents buyers and sellers of property. My agent was able to keep my house off the market. I found a home that was coming soon and my agent was able to find the agent of the seller. She pushed for a tour, locked it in, made an offer, by Monday we were in negotiation mode. My agent was able to keep my now home off the market so the seller never had an open house and I did not have to compete with other home buyers or investors. I say that to say, find an agent who knows what they are doing. Mena, but how would I know? Ask for referrals! My agent was a friend of the family and when I was 20 I used to attend her First Time Home Buying Seminars. Fast forward thirteen years later she’s still an agent and her agency has grown.
Book-Keeper or Book-Keeping Software: According to Xero Book-keepers provide accurate, up-to-date financial information about a business. My book-keeper is from QuickBooks and they categorize all transactions and from there my accountant breaks down my numbers and uses it for tax planning, strategy, and budgeting. When my lender requested a 2021 profit and loss statement, along with the January - March Profit and Loss statement I was able to quickly send over documents because my bookkeeper was already handling it.
If you didn’t learn anything from this blog I hope you learned this one thing, stay ready so you don’t have to get ready. Overall my paperwork was in order and up to date but I still needed to file and pay taxes. In order to qualify for a loan you cannot owe taxes and if you do owe you have to be on a payment plan and have already made 4 payments. This is the information my lender provided and from my google search it sounds like trying to purchase a home while already owing taxes just complicates the approval process. So in my opinion if you can pay your taxes before purchasing a home it will give you a better chance at getting approved. Fast Forward three months later I am now settled into my new home. I am currently renovating and stuff is everywhere. I have learned a ton throughout this entire process. Let's just say there are some things I wish I knew before buying a home.