What used to be known as a part time job or a side business has a catchy new term: The Side Hustle - usually seen with a # in front of it (
#sidehustle). People telling you how to make more money, get out of debt, secure your future or pay for your kids' college all recommend getting a few. Side Hustles are talked about in
Entrepreneur magazine and Celebs like
Steve Harvey. They are also the new term for a Direct Sales, Network Marketing or Home Based Business.
This can get tricky when you are going for a mortgage approval. Banks don't care about your new ventures as much as they care about how they impact your income. Here's some great information for people that have a Side Hustle or two and want to get approved for a mortgage. This is a reprint of an article from NAV (link to original article below).
Working for Someone Else (a Job Plus a Side Gig)
If you have a second job working for someone else, you are probably paid in one of these ways: W-2 salary, hourly, commission, bonuses, or some combination. If your extra income varies from year to year, lenders will first look to see that the income is not declining, then they will average it for the amount of extra income you may use for qualifying.
If you have unreimbursed work expenses reported on your taxes, the lender may deduct those amounts from your earnings. For example, you make an extra $1,000 a month
driving for Uber, but you deduct $400 a month on your taxes for various expenses. Thus your "net income" is really $600 a month.
Working for Yourself (a Business)
Ah, the
joys of owning a business! There are many possible rewards, but when it comes to applying for a mortgage, be prepared for added paperwork. As with the first category, lenders will be looking first for:
- Income history (at least two years reported on tax returns),
- Level or increasing net income (declining income year-to-year could negate any benefit, or even hurt you if you show losses), and
- Year-to-date information like a profit and loss statement (does not need to be audited) to support that your income is in line with previous years.
The most important advice if you have a side business reported on your taxes is this: If your net income is actually a loss due to write-offs, the side business will hurt you, not help you, when qualifying for a mortgage.
Keep that in mind as you plan. And be prepared to provide documentation of additional income, including trends from previous years."
