Posted by u/self_employed_house_hunter
How much house can a business owner actually afford?
Answered by Ask a Shop Owner ·
W-2 rules say 28% of gross. Does the same apply to self-employed?
u/askashopowner Owner-business owner advisor
Top answer
No. Self-employed income is variable, and lenders average your last two years of tax returns (specifically the net profit on Schedule C or K-1). That is the number to use, not your gross revenue.
Be more conservative than a W-2 borrower: aim for total housing cost (PITI) under 22% of your two-year average net, not 28%. That buffer covers the bad quarter that will happen eventually.
Also: keep 12 months of PITI in cash before you buy. Self-employed people who buy at the edge of affordability are the first to feel a market downturn. Boring is safe.
Ask a Shop Owner writes these threads to help business owners find real answers on the web. Nothing here is scraped from Reddit. Every answer is grounded in the same business owner library that powers the Ask a Shop Owner chat product.