The election is behind us, and mortgage rates have been moving in a welcome direction.
The national average 30-year fixed mortgage rate declined to 7.18% on November 5, marking the third consecutive weekly decrease. YAY Finally!
Will rates continue to decline? That's difficult to predict. Inflation, employment, economic policy and the bond market will all play a role.
But if you're self-employed and considering buying a home or refinancing next year, there's something you can do right now that may be more important than trying to predict mortgage rates.
Review your mortgage plans before making your final year-end tax decisions.
“I Write Everything Off. Can I Still Qualify for a Mortgage?”
This is one of the questions I hear most frequently from self-employed borrowers.
And the answer may surprise you.
Mortgage lenders don't necessarily calculate qualifying income the same way the IRS calculates taxable income.
Depending on your business structure and the applicable loan guidelines, certain expenses, including depreciation and amortization, may be added back when determining qualifying income.
We also look at business cash flow, income trends and whether your earnings are stable and likely to continue.
That means a borrower who reports relatively modest taxable income may have more qualifying income than they initially realize.
What If My Tax Returns Don't Show Enough Income?
Conventional financing isn't the only possibility.
Some alternative mortgage programs allow qualifying income to be evaluated using 12 or 24 months of bank statements, subject to program-specific calculations and requirements.
Other programs may consider substantial qualifying assets as a source of repayment ability.
The appropriate financing depends on your credit, down payment, assets, property type and overall financial situation.
Do I Need Two Years of Self-Employment?
Generally, lenders prefer a two-year history of self-employment.
However, certain conventional guidelines permit exceptions, including shorter self-employment histories supported by prior experience and, for some established businesses, documentation using only one year of tax returns.
These exceptions have specific requirements, so it's important to review your situation individually.
Why Year-End Planning Matters
Your CPA's job is to help you manage your taxes.
My job is to help you understand how your documented income, assets and debts affect mortgage qualification.
Both are important.
If you're planning to buy a home in 2027, coordinating these conversations before the end of 2026 may help you understand your financing options before your tax decisions are finalized.
I'm not suggesting that you give up legitimate deductions or pay unnecessary taxes.
I'm suggesting that you understand the mortgage implications before making decisions that could affect your future plans.
My Approach: Let's Look at the Whole Picture
After more than 30 years in mortgage lending, I've learned that self-employed borrowers often have more options than they think.
Sometimes conventional financing works beautifully. Sometimes a bank-statement program or another alternative is a better fit.
The key is understanding the borrower's complete financial picture.
Mortgage planning isn't just about finding a rate. It's about finding the financing structure that works for you.
If you're self-employed and thinking about buying a home or refinancing in California next year, let's have that conversation now.
Karen Card
Sr. Loan Officer | NMLS #235218
The Card Team | American Pacific Mortgage Corporation
714-290-6940
www.card-team.com
