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CNBC
01-05-2025
- Business
- CNBC
How to get a mortgage if you're self-employed
Applying for a mortgage can be difficult, especially for people with nontraditional income sources, like self-employed workers, small business owners, gig workers, freelancers and anyone else who doesn't receive a W2 from an employer. "The typical mortgage broker has a checklist," Keith Hall, president and director of the National Association for the Self-Employed (NASE), told CNBC Select. "They want to see how long you've been at your existing job, as well as two years' worth of pay stubs." When you're self-employed, "your income isn't as even as someone who gets a regular paycheck," Hall added. So, self-employed workers must "paint a story" of their business and its future, he said, to assure lenders that they're creditworthy. Sole proprietors, independent contractors, partners in a business, gig workers or those who own a business part-time are all considered self-employed, according to the Internal Revenue Service. Generally, anyone who brings in income by doing work that's not documented on a W2, is considered self-employed. Most borrowers want to see that you've been self-employed for at least two years before they consider you for a mortgage. In addition to the documents that everyone needs to apply for a mortgage, such as bank statements and identification, self-employed applicants will also need to provide additional documentation to potential lenders. You'll need to show how you earn your income. You can do this by getting a letter from a certified public accountant, showing your business license or proof of business insurance. If you're a freelancer, a letter from a professional organization verifying your membership or a letter from a client will also suffice. Lenders also want to know as much as they can about the state of your business. You should provide them with bank records, profit-and-loss reports and cash-flow statements from the past two years. Hall said you may also want to include documents from your accounting software, such as QuickBooks. Lenders will also need to see your tax returns for the past two years as well as tax forms, relating to your business type — Schedule C for most LLCs and some sole proprietorships, Form 1065 for general partnerships and Form 1120 for C Corporations or S Corporations. You'll make a stronger case if you can show that your business is expected to grow, Hall said. So bring your business plans for the next few years. You can reach out to a self-employment or small business expert through NASE, the Small Business Administration or the Internal Revenue Service to ensure you have everything you need for your mortgage application. If you're self-employed or have unpredictable income, you'll have a better chance of being approved for a non-qualifying mortgage (non-QM), home loans that have have more flexible terms and accept non-traditional income sources. Examples of non-QM loans for self-employed borrowers include: Bank statement loan: A bank will consider your mortgage application based on your bank statements for the past two years rather than your income tax forms, such as a W-2. Profit-and-loss loans: A bank will consider your mortgage application based on your business' profit-and-loss statements rather than your income tax forms, such as a W-2. Investor cash flow loans: Also known as a debt service coverage ratio (DSCR) loan, this type of mortgage is specifically for real estate investors. A bank will consider your mortgage based on your rental analysis, rather than income or even employment verification. CrossCountry Mortgage offers all three, as well as several down payment assistance programs. Fixed-rate and adjustable-rate available, apply online for rates. Conventional loans, FHA loans, VA loans, USDA loans, Jumbo loans, manufactured home loans Apply online for terms 620 for conventional loans, 500 to 580 for some government-insured loans 3% New American Funding also provides non-QM loans to self-employed applicants. Borrowers can qualify using bank statements, profit and loss statements or tax returns. Apply online for rates. Conventional, FHA, USDA, VA, jumbo, refinancing, home equity loan, reverse mortgage 10- and 30-year fixed-rate terms and various adjustable-rate terms 620 0% for VA or USDA loans, 3% for conventional, 3.5% for FHA If you're worried a lender will take one look at your financials and reject your application, there are steps you can take to increase your chances. Local banks are much more likely to provide loans to local small business owners, Hall said. "The smaller community banks are more involved in the community," he said. "If you're operating a plumbing operation or a small restaurant, there's a reasonable chance that a banker has been to your restaurant. They're more familiar with the community." Lenders consider an applicant a safer bet if they make a larger down payment and have more savings in reserve. This shows lenders you have steady income and a lot of cash savings. The average down payment for first-time homebuyers is 9%. If you don't have a lot saved, consider down payment assistance programs. You can also make yourself a more attractive applicant by raising your credit score. Most lenders require a credit score of 620 for a conventional mortgage, but borrowers with a score of 760 or higher typically get the best rates. All three credit bureaus — Experian, Equifax and TransUnion — consider payment history, debt repayment and your credit utilization rate when determining your rate. By making on-time payments, paying off debts in full, catching errors on your credit report and keeping your credit utilization under 10%, you can significantly improve your credit score in a short amount of time. Separate your work and personal life — that goes for your finances, too. This makes it simpler for lenders to assess your business income and your personal finances. According to the Small Business Administration, you can do this by opening a business bank account, getting a Data Universal Numbering System number (which allows you to build credit for your business) and getting a business credit card. If all else fails, you may want to ask a loved one to cosign a loan with you. This means they promise to pay the lender if you fail to make the payment. Being a co-signer is risky and consequential. A cosigner is responsible for repayment but does not own a portion of the house. It also impacts the cosigner's credit score. Yes, but it will require additional paperwork, including financial documents, tax documents and future business plans. Typically, you should be able to show two years of steady work or self-employed income to be considered for a mortgage. Yes, getting a home loan as a self-employed person can be more difficult. However, there are banks that provide non-qualifying mortgages that don't require W2s. Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here. At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
Yahoo
08-03-2025
- Business
- Yahoo
California Corporate Tax: What It Is and How It Works
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. California has a high corporate tax rate and strict rules, but its large market and strong economy can benefit some businesses. Companies incorporated or operating in the Golden Gate state should understand the tax rate, how it applies and the filing process. A financial advisor can help with specific tax planning needs. As of 2025, California imposes a flat corporate income tax rate of 8.84%. This rate applies uniformly, without graduated brackets, meaning all taxable income is subject to the same percentage. Banks and financial institutions are subject to a slightly higher rate of 10.84%. In addition to the corporate income tax, California requires corporations to pay an annual franchise tax of $800 in the first quarter of each accounting period as well as statewide sales and use tax rates of 7.25%. The application of California's corporate tax rate varies based on a corporation's incorporation status and business activities within the state: Domestic corporations: These entities are incorporated under California law and are subject to the state's corporate income tax on all net income derived from both within and outside California. They are also required to pay the annual minimum franchise tax of $800. Foreign corporations: Companies incorporated in another state or country that conduct business in California are subject to California's corporate income tax on income earned within the state. They must also comply with the minimum franchise tax requirement. For example, consider a corporation incorporated in Nevada that operates a branch in California. This foreign corporation must pay California's 8.84% corporate income tax on the net income generated from its California operations. Additionally, it is obligated to pay the $800 minimum franchise tax annually, regardless of profitability. Businesses operating or incorporated in California must follow specific steps to report income and meet tax obligations. Understanding the process can help companies avoid penalties and stay compliant with state regulations. Here are five general steps to help you file your corporate taxes. Find out which tax forms and payments your business needs to file based on its structure and activities: Domestic corporations: Must file Form 100 (California Corporation Franchise or Income Tax Return) annually, reporting all income and paying the applicable taxes, including the minimum franchise tax. Foreign corporations: Required to file Form 100 if they are registered to do business in California or have income derived from California sources. Documentation can include the following: Financial statements: Reflect the corporation's financial activities with detailed income statements and balance sheets. Federal tax return: Have a copy of the federal corporate tax return (Form 1120) available, as information from this form is often needed for state filings. Records of income and deductions: Maintain comprehensive records of all income sources and deductible expenses to ensure accurate reporting. To meet compliance, you will need to fill out and submit tax forms by the deadline: Form 100: Used for reporting corporate income and calculating the franchise tax. Ensure all income, deductions, and credits are accurately reported. Form 3539 (payment for automatic extension for corporations and exempt organizations): If an extension is needed, this form allows corporations to request additional time to file their return. Note that an extension to file does not extend the time to pay any taxes due. These estimated taxes need to be submitted on time to avoid penalties: Franchise tax: The minimum $800 franchise tax is due within the first quarter of each accounting period, regardless of the corporation's income or activity level. Corporate income tax: Any tax due beyond the minimum franchise tax must be paid by the original due date of the return, typically the 15th day of the 4th month after the close of the taxable year (April 15 for calendar-year taxpayers). Payments can be made electronically through the California Franchise Tax Board's online services or by mailing a check with the appropriate payment voucher. Here are three common requirements businesses should keep in mind: Estimated tax payments: Corporations with a tax liability above $500 are required to make quarterly estimated tax payments to avoid underpayment penalties. Record keeping: Keep all tax records, including filed returns and supporting documents, for at least four years in case of an audit or review. Stay informed: Tax laws and rates may change, so check the California Franchise Tax Board's website or consult a tax professional to stay informed. California's corporate tax system includes an 8.84% tax rate and an $800 minimum franchise tax. Businesses must meet deadlines, make estimated payments and follow reporting rules to avoid penalties. A financial professional can help with tax planning, compliance and long-term financial decisions. If you're looking for ways to lower your tax liability, a financial advisor who specializes in tax planning can help optimize your finances. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now. If you are self-employed or a business owner, you can lower taxable income by deducting home office costs, retirement contributions and business expenses. Structuring income for a qualified business income (QBI) deduction can also help reduce taxes. Photo credit: © © © The post California Corporate Tax: What It Is and How It Works appeared first on SmartReads by SmartAsset. Sign in to access your portfolio
