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25% Ownership Means “Self-Employed”; 2 Year History Required

Borrowers who switch from one W2/salaried job to another in the same field can still garner mortgage financing as soon as 30 days after their job switch. There is a caveat, however, that surfaces all too often in this age of “entrepreneurialism.”

If a borrower takes a 25% (or higher) ownership stake in his new employer, he renders himself effectively “self-employed”. When this happens, the borrower must wait at least 2 years before he can garner financing; self employed borrowers need a “2 year income history” before their self-employment income can be used to qualify for mortgage financing.

This is the case even if the borrower remains in the same field and pays himself a salary (via W2 income).

If a borrower in need of mortgage financing intends to buy into a company, we suggest employing some creative accounting to ensure he is not a 25% owner. We only need a CPA letter to prove he is not a 25% owner, so the borrower can defer his ownership buy-in, or he can place shares in the name of a relative, for example.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646