I'm self-employed in Ohio. Can I get an OHFA loan and down payment help?

Start with the numbers: two Ohio examples

Lenders don't qualify you on what your business brings in. They start from the profit on your tax return, add back a few non-cash write-offs, and average. Two illustrative cases show how that plays out.

A Dayton-area HVAC contractor (Schedule C)

Marcus runs his own heating and cooling business out of a van and a garage. He's a sole proprietor and files Schedule C.

The two-year average is $63,250 a year, about $5,270 a month. FHA uses the lower of the two-year average and the most recent year, so it lands on that same $5,270. His $161,000 in sales never enters the math.

A Columbus practice owner (S corporation)

Dana, a nurse practitioner, owns 100% of a small clinic set up as an S corporation. She pays herself a W-2 salary and takes the rest as K-1 income. Here the lender looks at both, and at the business's own return. Fannie Mae counts the S corp income only if her distributions match the K-1 income, or the business has enough cash on hand; a current or quick ratio of 1 or more is generally enough. A healthy clinic with thin cash at year-end can look weaker on paper than it is. Talk to the lender before your accountant closes the books.

Do you count as self-employed?

FHA, Fannie Mae and Freddie Mac draw the line at 25%. Own a quarter or more of a business and you're self-employed for the mortgage, whether you file Schedule C, a partnership return or an S corp return. Own less, and Freddie Mac lets your K-1 income be treated either way with two years of K-1s.

A 1099 alone doesn't settle it. Freddie Mac treats 1099 income on Schedule C like a paycheck only if your expenses are under 5% of gross, there's no cost of goods sold, receipts match the 1099s, and you have 12 months of history. A travel nurse with almost no expenses might pass. A contractor with a van never will.

How long you need to be in business

Two years is the target. The exceptions are narrow:

• FHA: one to two years works only if you spent at least two years before that in the same or a related line of work.
• Fannie Mae: under two years works if your latest signed returns show a full 12 months from this business and you earned as much or more before in a similar field.
• Freddie Mac: your business plus a prior similar job must add up to two years, with at least one year of self-employment on your returns.
• VA and USDA: not covered here; your lender confirms.

So Marcus, who did HVAC on a company payroll for six years before going out on his own, has an easier path at 18 months than someone who left an office job to start a food truck.

Which Ohio programs you can use

• OHFA's first-time homebuyer loan with OHFA Down Payment Assistance: 3% on a conventional loan, 3.5% on FHA, VA or USDA, forgiven after seven years. No employer needed. OHFA counts the income of all occupant borrowers against the county limit on the income limits page.
• Ohio Heroes: veterans, reservists and surviving spouses qualify by service, so a veteran running a roofing company fits. OHFA lists the other roles by occupation, such as physicians, nurse practitioners, RNs and volunteer firefighters, and doesn't say whether you must be on a payroll. Whether a private-practice NP or a 1099 nurse counts is something a participating lender confirms.
• Grants for Grads: any occupation, if your degree is less than 18 months old.
• Communities First: a 3% to 5% grant from the Port of Greater Cincinnati, statewide, counting borrower income only.
• City programs in Columbus, Cincinnati, Akron, Toledo and Lorain. None of them requires a W-2 job. See the full list.

The paperwork

OHFA's borrower checklist asks everyone for three years of tax returns and W-2s, 30 days of pay stubs and 30 days of bank statements. On top of that, self-employed buyers should have ready:

1. Two years of complete, signed personal returns with every schedule. Fannie Mae and Freddie Mac take one year if you've owned 25%+ of the same business for five years.
2. Two years of business returns, unless a waiver applies. FHA skips them when your personal returns show rising self-employment income and you aren't using business money to close.
3. A year-to-date profit and loss statement. FHA requires one, plus a balance sheet for non-Schedule C businesses, once more than a calendar quarter has passed since your tax year ended.
4. A signed IRS Form 4506-C so the lender can pull transcripts.
5. Proof the business is real: a license, a CPA letter or similar. Freddie Mac wants it dated within 120 days of closing.

The write-off trap

Every deduction that lowers your tax bill also lowers your qualifying income. Buy a new truck and write it off in the year before you apply, and you may have priced yourself out of the house. Under FHA's automated approval, a drop of more than 20% in self-employment income pushes the file to manual underwriting. Fannie Mae and Freddie Mac require the lender to analyze the trend.

The fix is timing. If you plan to buy in the next 12 to 18 months, show your accountant this page before you file.

What about a bank-statement loan?

Bank-statement loans qualify you on deposits instead of returns. Federal ability-to-repay rules allow lenders to use financial institution records. But these are usually non-QM loans, and OHFA programs run on FHA, VA, USDA or conventional first mortgages. In practice, you're choosing between a bank-statement loan with no OHFA help, or a return-based loan with the 3% to 3.5%. Price both on the affordability calculator.

Before you apply

• Add back depreciation and home office to your last two years' net profit, then average them. That's roughly your number.
• Keep business and personal accounts separate, and close from personal funds if you can.
• Know OHFA's score floor: 640, or 650 for FHA.
• Ask an OHFA-approved lender whether your occupation fits Ohio Heroes, then check your eligibility.

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