Self-employed in Florida and ready to buy? Start with the income math

Two Florida examples first

Self-employment rules make more sense with real-looking numbers. Both examples below are illustrative only.

The Cape Coral roofer with a big storm year

A roofing contractor files Schedule C. After a busy hurricane-repair season, the latest year was much stronger than the one before:

The two-year average is $83,500. FHA uses the lower of the two-year average or the most recent year, so it qualifies the roofer on $83,500, or about $6,958 a month, not on the $100,000 year. Fannie Mae requires a year-over-year trend analysis, and Freddie Mac requires the lender to justify that a significant increase is likely to continue for three years. A storm-driven spike is exactly what an underwriter will ask about.

The Keys charter captain with a slower year

A charter fishing captain's adjusted income drops from $72,000 to $55,000, a fall of about 24%. On an FHA loan, a decline of more than 20% sends the file from automated approval to manual underwriting. There, the lower income can still count if the drop came from an extenuating circumstance, income has been stable or rising for at least 12 months, and the captain qualifies on the reduced figure.

The lesson from both: lenders want a steady line, not a great year.

Which Florida programs are open to business owners

Hometown Heroes is built around employment. You must work full-time for an eligible Florida employer, such as a school, hospital, fire or ambulance service, law enforcement agency, court or licensed child care facility, verified with paystubs or an employer verification. Income from your own business generally doesn't meet that test. Edge cases, like owning a licensed home day care or a medical practice, are for a participating lender to confirm.

Florida Housing's products need a 640 credit score and can't be stacked with each other. Local programs set their own rules, and many open and close with funding; see our county SHIP guide.

A self-employed spouse and a hero spouse

Plenty of Florida households pair a business owner with a teacher, nurse or deputy. If the W-2 spouse works full-time for an eligible employer, that spouse can qualify for Hometown Heroes. The business income still matters, in one of two ways depending on how your lender delivers the program:

• TBA: the income limit uses the borrower income on the automated approval, with one limit for any household size.
• Bond: the limit counts the total income of every adult who will live in the home, so the business owner's earnings count even if that spouse isn't on the loan.

A strong business year can push a household over a Bond limit. Ask which option your lender offers, and read our TBA vs. Bond guide before you sign a contract.

How much history you need

Two years of self-employment is the standard. The shorter-history exceptions:

• FHA: one to two years works if you spent at least two years before that in the same or a related line of work.
• Fannie Mae: under two years works if your latest signed returns show a full 12 months from the current business and you earned the same or more before in a similar field.
• Freddie Mac: the lender documents a combined two-year history in the same or a similar field, and your returns show at least one year of self-employment income.

VA and USDA self-employment rules weren't part of our verified sources, so your lender confirms those.

Who counts as self-employed

FHA, Fannie Mae and Freddie Mac all use the same line: owning 25% or more of a business makes you self-employed for underwriting. A sole proprietor filing Schedule C owns 100%. Below 25%, Freddie lets a lender use K-1 income under either its self-employed or its employed rules, with two years of K-1s.

In Florida that reaches well beyond storefront owners: commission-only real estate agents, landscapers and lawn crews, mobile mechanics, booth-renting barbers, wedding photographers, tour guides and contract therapists all tend to land here.

Freddie Mac treats 1099 income as non-self-employed only in a narrow case: receipts match the 1099s, expenses are under 5% of gross, there's no cost of goods sold, and there's a 12-month history. Everyone else on a 1099 is underwritten as a sole proprietor.

The paperwork

• Two years of signed personal tax returns with every schedule, and usually business returns.
• A signed IRS Form 4506-C so the lender can pull transcripts.
• For FHA, a year-to-date profit and loss statement once more than a calendar quarter has passed since your tax year ended, plus a balance sheet unless you file Schedule C.
• Proof the business exists, such as a license or a third-party verification.

Fannie and Freddie can accept one year of returns when you've owned 25% or more of the same business for five years.

Bank-statement loans and Florida assistance

Bank-statement loans qualify you on deposits instead of tax returns. Federal ability-to-repay rules allow income to be verified with financial institution records, which is why they exist, but they're generally non-QM loans. Florida Housing's seconds sit behind its own FHA, VA, USDA or conventional first mortgages, so a bank-statement loan generally can't be paired with them. Each local program decides what first mortgage it accepts.

If your returns show too little income, the choice may be assistance later, after a stronger tax year, or a bank-statement loan now without it.

Six moves before you apply

1. Compare net profit, not gross sales, on your last two returns.
2. Write a short explanation of any big jump or drop, such as a storm season or a lost contract.
3. Keep down payment savings in a personal account, separate from business cash.
4. Get a current-year P&L ready.
5. Check your credit against the 640 floor.
6. Talk to a participating lender who handles self-employed files often, then check your eligibility.

Questions we hear