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Who's got it better - W2 Wage Earners or Self-Employed Borrowers?

I recently had a conversation with a self-employed borrower who felt like the mortgage qualification gods were out to get him. We often hear from business owners that the income guidelines for mortgages seem stacked against them. The statement I hear the most is: “There is no guarantee that a regular employee won’t lose their job tomorrow, so why does my business get scrutinized?”

self employed vs w2 for home loans

I’m the first one to say that the more financially well-off you become, the more paperwork you have to deal with. Not just in regards to a mortgage but that’s what I’ll focus on. For example the more assets you have, the more bank statements you have to provide. Is having a lot of money in the bank bad? No way. It’s just a few more documents you have to download and provide.

It is important to note that W2 employees don’t just apply for a loan and get handed a blank check. Everything requires multiple verifications, no matter how you earn your income (whether you are W2 Wage Earners or a Self-Employed Borrowers). A regular wage earner is required to have their income verified through 2 paystubs, 2 years’ worth of W2s and a verification of employment filled out by their employer. So that’s not exactly zero documentation.

If they earn commission, we need 2 years’ tax returns. If they earn bonuses we need a letter from their employer confirming these are likely to continue. We aren’t giving wage earners any special treatment.

Let’s compare that with what’s required from a self-employed borrower:

  • 2 years’ tax returns – personal and business

  • Year-to-Date Profit and Loss Statement

Not too bad right? Of course, every loan file is different. Some business owners have several companies - each with their own tax returns. Or they have an off year that was messing up the averages. Sometimes you have a very profitable business… but it hasn’t been open 2 years just yet. Maybe your business generates a lot of income but also has a lot of expenses and so you can’t qualify traditionally.

Each of the above mentioned pain points for business owners, I have a solution for in terms of getting loan approval. The issue isn’t that the odds are against you in terms of acquiring financing if you are your own boss. You just need a solid strategy and your underwriting process can be just as easy as anyone else’s. Obtaining a mortgage doesn't have to be hard - whether you are an employee, an entrepreneur, retired or just entering the work force. It just has to be done right.


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