It’s great to be self employed and be your own boss but doing so creates several hurdles when you attempt to get a home loan.  It used to be possible to get a loan based on stated income but that practice has been discontinued. 

You have to be able to prove the business exists.  Sometimes, two years of tax returns may be proof enough.  At other times, a statement from your accountant or CPA may suffice.  You may also be able to use your tax returns.

If you do choose to use tax returns, your  income must be verified from your last two years of tax returns rather than just one year.  The applicant must use IRS 4506-T, which allows the lender to directly receive the tax returns from the IRS; tax returns are not accepted from the applicant directly.  It is important to understand that eligibility for the loan will be based on net income (income minus expenses) rather than gross income.  This makes for a more realistic appraisal of the situation and gives the lender a much better picture of the applicant’s financial situation.  

           It's  a lot of work, but when it is all said and done the reward is well worth the legwork.