If you are an active duty military spouse, your resume may be colorful and full of variety, particularly if you were able to find employment every two to three years as you move with your service member. The difficulty in finding competitive and sustainable employment has led many military spouses to starting their own businesses and becoming entrepreneurs. Many veterans also follow that same path after leaving the military. The idea isn’t new; after World War II, 50% of veterans went on to start their own businesses.
With this type of entrepreneurship increasing, it’s important for military families to understand how this type of income can impact their home buying process. Being an entrepreneur doesn’t make buying a home unattainable, but it can pose unique challenges.
Bryan Bergjans, SVP, Military Lending for Caliber Home Loans Inc. is a Navy reserves officer who completely understands the military life. “Self-employed borrowers have unique challenges when in need of mortgages. It can be an administrative marathon for them to get home loans,” Bergjans said.
The reason for this is that self-employed borrowers must prove that their business is stable so that lenders can ensure they are able to cover expenses. They may also require documentation that demonstrates a proven track record of paying debts.
Bergjans explained that lenders will need documents audited by a certified public accountant or CPA, which can extend the timing of an income-check. He also said that some business owners might pay themselves through W2’s, but that it isn’t always enough. Underwriters will still need to see a profit and loss statement along with tax returns.
“Some self-employed borrowers are misguided in the process because they aren’t aware of the documentation they need to provide,” Bergjans shared. He also explained that when seeking a home loan, you should typically have been self-employed and able to show income on your tax returns for a minimum of two years. He continued, “We want to see a two-year work history of running your own business. Sometimes you can get approved in a year and a half if you’ve just transitioned from the military and may be in the same line of work; otherwise, two years is standard.” This translates to a potential borrower showing there isn’t a lot of fluctuation in their income. Significant decreases in documented income could potentially disqualify a borrower.
Bergjans also stressed the importance of having your finances well-organized. Without this, securing a home loan might prove to be difficult.
The borrower’s debt to income ratio should be around 43% or lower to ensure debts are manageable. Self-employed borrowers should also be mindful of the amount of expenses they “write-off” annually. Lenders will look at income after expenses are deducted, which could impact approval.
Bergjans had one last strong piece of advice for the self-employed military and veteran community: “It’s really important that you make sure that your business is healthy, because that is your income.”