Introduction to Proving Self Employment History
Self-employment is a great way to gain flexibility, autonomy, and income potential. But when it comes to applying for a loan or mortgage, it can be challenging to prove self-employment history. It’s important to be able to prove your self-employment history to lenders in order to get the best possible loan terms.
Understanding the Types of Self-Employment Income
There are two main types of self-employment income: earned income and unearned income. Earned income is income that is earned through working as a self-employed individual. This includes income from freelance work, consulting, or other self-employed services. Unearned income is income that is not earned through work, such as dividends, capital gains, or rental income.
Gathering Necessary Documents
The first step in proving self-employment history is gathering the necessary documents. It is important to have documents that show a continuous history of self-employment income, as lenders will want to see at least two years of income history. Documents that can be used to prove self-employment history include:
- Tax Returns: Tax returns are essential for proving self-employment history. They should be filed annually and should show your income for the year.
- Business Registration: If you are self-employed, it is important to have a business registration with the appropriate state office. This will show that you are a legitimate business and will help to prove your self-employment income.
- Invoices and Receipts: Invoices and receipts are also important documents for proving self-employment income. These documents should show the amount of money that you have earned from clients over the past two years.
- Bank Statements: Bank statements can also be used to prove self-employment income. They should show deposits into your account and should be consistent with the income that you are declaring on your tax returns.
Compiling Income Records
Once you have gathered the necessary documents, you will need to compile your income records. This includes gathering all of your invoices, receipts, and other documents that show your income from the past two years. It is important to have the documents organized so that you can easily provide them to the lender.
Understanding Loan Requirements
Different lenders have different requirements for self-employed borrowers. It is important to understand the lender’s requirements before you apply for a loan. Most lenders will require two years of income history and will want to see a steady stream of income. They may also require additional documents such as business registration, bank statements, and tax returns.
Finding the Right Lender
Finding the right lender is key to proving your self-employment history. Different lenders have different requirements and it is important to find a lender that is willing to work with you. It is important to research lenders and find one that understands your self-employment situation and is willing to work with you to get the best loan terms.
Working with an Accountant
Working with an accountant is another great way to prove your self-employment history. An accountant can help you organize your income records, prepare your tax returns, and provide other documents that will be needed when applying for a loan. An accountant can also help you understand the lender’s requirements and can ensure that you are meeting them.
Preparing for Loan Application
Once you have gathered the necessary documents and understand the lender’s requirements, you can begin to prepare for the loan application. It is important to be prepared for the application process and to provide the lender with all the necessary documents. This will help the lender to understand your self-employment history and will make it easier to get a loan.
Proving self-employment history can be a challenge, but it is possible with the right preparation. It is important to have the necessary documents, understand the lender’s requirements, and work with an accountant to ensure that you have everything you need to get the best loan terms. With the right preparation, you can prove your self-employment history and get the loan that you need.