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This is a super-common question, as many models are interested in using their income to purchase a home, car, rent an apartment, etc. I did Verification of Employment, or VOE, for a mortgage company, so I'll break down how that works for self-employed folks. Mortgage applications tend to require more documentation than other transactions, but some of this can apply to cars and apartments.
This may very slightly from bank to bank, but here is the basic gist of the process:
All home mortgage applicants will be asked for paystubs, W2's, and tax returns. In the case of someone working a 9-5, this is often enough. But if you're an independent contractor, the financial institution, they'll want a little more info. You may be asked for any combination of the following:
Preferred Method - CPA letter
The first thing that the bank will do is contact the person who files your taxes, and they'll obtain a letter from this person stating that you've been self-employed for x period of time, and your income is likely to remain steady. If your CPA can't or won't provide this info, or you file your own taxes, there are alternatives that the bank will go to.
Secondary Method - Pulling a business license from the Secretary of State, or running a Lexus Nexus report
The bank will check the appropriate Secretary of State website to see if you have a business license, and/or use Lexus Nexus, which is a database that they can search for any businesses associated with your name.
Third Method - Financial records
The bank will ask for bank statements and other financial records (electronic wallet statements, stocks, etc) for a certain period of time. They want to see that your income is going to continue at an acceptable rate to afford your mortgage payments. The bank won't care who the money is coming from, just that you're making an average of $X per month and can afford to pay them.
If a bank says that they can't verify your income because you don't have a 9-5, they are full of shit. I currently index documents, and my team handles non-traditionally employed borrowers - retired, self-employed, trust fund babies, folks who make their living buying and selling stocks, folks who buy and sell shit on ebay, etc. It's more work to verify a self-employed borrower, but it's part of the job.
Something to be aware of
They are going to pick apart your credit report and bank statements and ask for explanations regarding anything that's unusual and/or recent. You'll have to explain every late payment showing on your credit report, every credit inquiry, any extra or unusually large deposit (was it a bonus, etc, is it a regular or one-time thing, etc). Yes, you may even have to explain that the credit inquiry on X date was the inquiry pulled for this mortgage application (I see this on tons of explanation letters, I'm not kidding). This is the bank covering its ass, and making absolutely sure that you're going to be able to afford your payments. They shouldn't, and usually don't, care further than that.
If you have any other mortgage-related questions, feel free to ask me! If I don't know the answer, I can ask coworkers and find the answer for you.
This may very slightly from bank to bank, but here is the basic gist of the process:
All home mortgage applicants will be asked for paystubs, W2's, and tax returns. In the case of someone working a 9-5, this is often enough. But if you're an independent contractor, the financial institution, they'll want a little more info. You may be asked for any combination of the following:
Preferred Method - CPA letter
The first thing that the bank will do is contact the person who files your taxes, and they'll obtain a letter from this person stating that you've been self-employed for x period of time, and your income is likely to remain steady. If your CPA can't or won't provide this info, or you file your own taxes, there are alternatives that the bank will go to.
Secondary Method - Pulling a business license from the Secretary of State, or running a Lexus Nexus report
The bank will check the appropriate Secretary of State website to see if you have a business license, and/or use Lexus Nexus, which is a database that they can search for any businesses associated with your name.
Third Method - Financial records
The bank will ask for bank statements and other financial records (electronic wallet statements, stocks, etc) for a certain period of time. They want to see that your income is going to continue at an acceptable rate to afford your mortgage payments. The bank won't care who the money is coming from, just that you're making an average of $X per month and can afford to pay them.
If a bank says that they can't verify your income because you don't have a 9-5, they are full of shit. I currently index documents, and my team handles non-traditionally employed borrowers - retired, self-employed, trust fund babies, folks who make their living buying and selling stocks, folks who buy and sell shit on ebay, etc. It's more work to verify a self-employed borrower, but it's part of the job.
Something to be aware of
They are going to pick apart your credit report and bank statements and ask for explanations regarding anything that's unusual and/or recent. You'll have to explain every late payment showing on your credit report, every credit inquiry, any extra or unusually large deposit (was it a bonus, etc, is it a regular or one-time thing, etc). Yes, you may even have to explain that the credit inquiry on X date was the inquiry pulled for this mortgage application (I see this on tons of explanation letters, I'm not kidding). This is the bank covering its ass, and making absolutely sure that you're going to be able to afford your payments. They shouldn't, and usually don't, care further than that.
If you have any other mortgage-related questions, feel free to ask me! If I don't know the answer, I can ask coworkers and find the answer for you.
by late payment you mean late payments on credit card? does entire credit card debt for example better be paid in full or 90% every month to be approved or just don't miss the minimum payments every month?
