February 20, 2012
A reader asks, “Is it possible to get an FHA loan if the ‘gap’ in employment was due to starting your own business? I have 1099?s that show income, as well as pay stubs as a contractor with a contract in place. The company paying me wants to hire me full time as a w-2 employee.”
FHA home loans require the borrower to verify employment, but the lender does not have to deny a loan simply based on alternative, non-traditional, or self-employment. However, the rules for these types of employment are a bit more stringent so that the loan officer may properly verify income.
When you fill out an FHA loan application, you’re required to list your employment prior to the period of self-employment, plus list out specific details of your small business, contract or freelance income. Self-employed FHA loan applicants must show their net income and list all business expenses that might offset that income.
Borrowers who are self employed and want to qualify for an FHA home loan need to keep good records. It’s best to have your taxes professionally prepared as the FHA will require these tax documents as well as your profit/loss record keeping and other vital documents that will provide proof of your legitimate business income and expenses.
Self-employed FHA loan applicants should begin preparing for their new home purchase earlier than people with traditional careers, if only to make sure they have all the right paperwork to present to a potential lender. You should also be prepared to explain any lengthy gaps between contracts, freelance work, or slumps in the business as well as provide explanations as to the nature of your business and why such gaps would not affect your ability to handle monthly FHA mortgage payments.
Do you have a question about FHA home loans? Ask us in our comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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