Why the first talk matters so much

A buyer with a W-2 job is easy to check. The lender looks at pay stubs and a few forms, and that is mostly it. A business owner is different. The lender wants to see what the business really brings home, year after year.

In Nashville, Franklin, and Brentwood, we work with many buyers like this. Think of a builder in Spring Hill, a dentist with her own office in Cool Springs, or a session player who works with ten studios. Each one earns money in a different way. Each one needs a slightly different plan.

You do not need to be a loan expert. You just need to ask good questions early.

How to bring it up without being nosy

Money can be a touchy subject. Try something like this: “Lots of my buyers own a business. The loan for that can work a little differently. Do you mind if I ask a few quick questions so we do not hit a bump later?” Most people are glad you asked. It shows you are looking out for them.

The 7 questions

1. How long have you worked for yourself?
Time matters. Many standard loans like to see about two years of self-employment on your tax returns. A shorter history can still work in some cases, like when the buyer did the same kind of work for someone else first. You just need the start date.

2. How do you get paid?
Some owners pay themselves a W-2 salary from their own company. Some get 1099 forms from clients. Some get a K-1 form because they own part of a business with other people. Each kind of pay is checked in its own way.

3. What did your tax returns show after write-offs?
This is the big one. Business owners often lower their taxable income with write-offs. That saves money at tax time. But lenders usually start with the income after those write-offs, not the money that came in the door. A buyer who grossed a lot may show much less on paper.

4. Is your income going up, going down, or staying steady?
Lenders like income that is steady or growing. If this year is slower than last year, the lender may use the lower number. A dip is not always a deal killer, but the loan officer needs to know about it early.

5. Where is the down payment coming from?
Cash for the down payment and closing costs must be easy to trace. If the money is sitting in a business account, the lender may ask for extra proof that taking it out will not hurt the business. Money moved around at the last minute can cause delays. Ask your buyer to leave their accounts alone and talk to the loan officer before moving any funds.

6. Are your taxes filed and paid up?
Ask if the last tax return is filed, or if they asked the IRS for more time. Also ask if they owe back taxes. A payment plan with the IRS does not always stop a loan, but it has to be shared up front.

7. Are any big changes coming?
A new business, a switch from a W-2 job to 1099 work, or a large business loan can all change the picture. So can a new truck or new equipment bought on credit. Ask your buyer to hold off on big moves until after closing. If a change cannot wait, the loan officer should hear about it first.

What to do with the answers

Write down what you learn and share it with the loan officer, with your buyer’s OK. Then ask for a preapproval based on a full look at the buyer’s papers, not just a quick chat. For a business owner, that letter is worth much more. It means someone has already read the tax returns.

Sometimes the answers point to a problem with a standard loan. Maybe the write-offs are too big, or the business is too new. That is when a broker can help. Some loan programs use bank statements, a profit and loss statement, or 1099 forms in place of full tax returns. These programs often cost more and may need a larger down payment. But they can open a door that seemed shut.

Keep the timeline real

Self-employed files often need more papers. Before you agree to a short closing, check with the loan officer. A little extra time in the contract can save a lot of stress later.

A quick list for your buyer

  • The last two years of personal tax returns, with all pages
  • Business tax returns, if the business files its own
  • A profit and loss statement for this year so far
  • Two to three months of bank statements, personal and business
  • A business license or a letter from a CPA, if they have one

Common questions

Should I ask a buyer about their income?

You do not need exact numbers. Ask how they are paid, how long they have worked for themselves, and if their income is steady. Then let the loan officer handle the details.

Can a buyer with less than two years in business get a loan?

Sometimes. It can depend on past work in the same field and the loan program. A loan officer can review the full story.

Can a self-employed buyer compete in a multiple-offer situation?

Yes. A preapproval based on a full review of their papers and a clear, realistic timeline both make the offer stronger.

Have a self-employed buyer?

Reach out through our contact page and we will connect you with a Heathrow Mortgage loan originator. You can also start an application online.

Sources