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-operator 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.
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