In general, a self-employed borrower must have been self-employed for a minimum of two years in order to use that income to qualify for a mortgage loan. A loan officer will request tax returns for the most recent two years and a year to date profit and loss statement to calculate qualifying income.
FHA does allow for an exception to the two year rule if the borrower meets the following requirement: The borrower must be self-employed between one and two years and can document “previous successful employment in the line of work in which the individual is self employed, or in a related occupation. A combination of one year of employment and formal education or training in the line of work in which the individual is self employed or in a related occupation is also acceptable” (HUD 4155.1 4.d.4.c Miniumum Lengths of Self Employment).
The decision as to whether or not the borrower would qualify is up to the underwriter’s discrection. When a scenario like this comes up, I submit it to my underwriter to make sure he/she will accept less than two year of self-employment before issuing a pre-approval letter. As a borrower, you may be asked to write a letter of explanation outlining your previous successful employment and any formal education or training in the field.
Here are two example scenarios in which less than two years may be acceptable:
1) Mort G. Age has worked 6 years as a truck driver for a company called To Infinity and Beyond. He is now a self-employed contractor and has been driving for a year and 2 months.
2) Lo A. Nofficer has succesfully managed a restaurant chain called Eat A Lot for 1 year and spent the previous four years earning her bachelor’s in management. She recently bought her own franchise and has been owner/operater for a year and 6 months.
If you are self-employed and would like me to examine about your particular scenario, feel free to email me. The answer is always “no” unless you ask!