In March 2016, the United States Bureau of Labor Statistics reported that 15 million people were self-employed in 2015 (10.1% of all U.S. workers). As service members leave active duty or retire, they may find themselves pursuing second careers as business owners, freelancers, carpenters, contractors, farmers or other independent workers that are considered “self-employed.” If you’re a self-employed veteran, know that you can be approved for and utilize your VA home loan benefits with self-employment income.

How is Self-Employment Income Calculated?

The Veterans Administration (VA) has established guidelines for the verification and calculation of self-employment income that includes looking at profit-and-loss statements, 1099s, and tax returns that prove you’ve been self-employed for at least two years. As your local VA loan lender in Hawaii, we’re here to educate you on exactly what you’ll need, so that you’ll know what to expect when you meet with your VA Loan Specialist.

Required Documentation for Self-Employed VA Loan Borrowers

  • CURRENT FINANCIAL STATEMENTS prepared in a generally recognized format, including:

–  Year-to-date profit and loss statement

–  Current balance sheet

Note: The financial statements must be sufficient for a loan underwriter to determine the necessary information for loan approval. The lender may require accountant-prepared financial statements or financial statements audited by a Certified Public Accountant (CPA) if needed to make a determination due to the nature of the business or the content of the financial statements.

  • INDIVIDUAL INCOME TAX RETURNS, signed and dated, plus all applicable schedules for the previous 2 years (or additional periods if needed to demonstrate a satisfactory earnings record). These include:

– 1099s

– W2s from your self-employed business (if you pay yourself a salary)

Schedule C, D, E, F (<– Link: see section “IRS Tax Return Schedules for Self-Employed Borrowers”)

Note: Provide a profit and loss statement if the most recent year’s tax return has not been prepared.

  • FEDERAL BUSINESS INCOME TAX RETURNS, if the business is a Corporation or Partnership, signed, for the previous 2 years plus all applicable schedules. These include:

– K-1s

– 1120 (Corporate Tax Returns)

– 1120S (Partnerships and S Corps)

  • Additionally, a list of all stockholders or partners showing the interest each holds in the business.

Note: A written credit report may be obtained on the business as well as the applicant as needed.

Two Year Minimum for Self-Employment

Generally, income from self-employment is considered stable when the applicant has been in business for at least 2 years.

  • Less than 2 years cannot usually be considered stable unless the applicant has had previous related employment and/or extensive specialized training.
  • Less than 1 year can rarely qualify. In-depth development is required for a conclusion of stable income on less than 1 year cases.

Business Income Analysis

If overall business income is declining from the previous tax year, we must use the lower income and the general economic outlook for similar businesses to determine whether the business can be expected to generate sufficient income for the applicant’s future needs. If the business shows a steady or significant decline in earnings over the period analyzed, the reasons for such decline must be analyzed to determine whether the trend is likely to continue or be reversed.

Now that you know more about self-employment and VA loans, one of our Hawaii VA Loans team members will be happy to answer any further questions you may have. You can reach us at 808-792-4251. If you’d like to begin the VA loan process today, fill out this form and we’ll get in touch with you.