Self-Employed? Here’s What You Need to Get a Mortgage

Being your own boss comes with many perks—flexibility, financial independence, and unlimited income potential. However, when it comes to getting a mortgage, self-employed individuals often face more challenges than traditional W-2 employees. Lenders require additional documentation to verify your income and ensure stability. If you're self-employed and looking to buy a home, here’s what you need to know.

1. Proof of Income: Tax Returns Are Key

Lenders rely on tax returns to assess income stability. Typically, you’ll need to provide:

• The last two years of personal and business tax returns

• All schedules (especially Schedule C, which reports business income)

• 1099 forms if applicable

Since lenders calculate your qualifying income based on your net income (after deductions), excessive write-offs can reduce the amount you qualify for. If homeownership is in your near future, consider working with a tax professional to optimize your filings.

2. Year-to-Date Profit and Loss Statement

A profit and loss (P&L) statement helps lenders see your current income trends. If your most recent tax return shows a lower income than expected, a strong year-to-date P&L can help demonstrate that your earnings are stable or improving.

3. Business Bank Statements

Some lenders may request business bank statements to verify cash flow. Be prepared to provide 6-12 months’ worth of statements to show consistent income deposits. If personal and business finances are mixed, a clear breakdown of expenses and income may be necessary.

4. A Strong Credit Profile

Your credit score and history play a huge role in mortgage approval. Most lenders require:

• A minimum credit score of 620 (higher scores can secure better interest rates)

• A clean credit history with low debt utilization

• No recent late payments or major derogatory marks

If your credit needs improvement, work on paying down debt and correcting any errors before applying.

5. A Lower Debt-to-Income (DTI) Ratio

Lenders calculate your debt-to-income (DTI) ratio to ensure you can handle mortgage payments alongside existing debts.

• Most lenders prefer a DTI below 43%

• Some loan programs allow for higher DTIs with compensating factors (e.g., large cash reserves)

To improve your DTI, consider paying off credit card balances or reducing other monthly obligations before applying.

6. A Larger Down Payment Can Help

While traditional employees may qualify for low down payment options, self-employed borrowers often benefit from putting more money down. A higher down payment can:

• Lower your loan-to-value (LTV) ratio

• Reduce lender risk, increasing approval chances

• Potentially eliminate the need for private mortgage insurance (PMI)

7. Loan Programs for Self-Employed Borrowers

Some mortgage programs cater to self-employed individuals, including:

• Bank Statement Loans: Instead of tax returns, lenders use 12-24 months of bank statements to verify income.

• Non-QM Loans: These allow alternative income documentation, but they may come with higher interest rates.

• FHA & VA Loans: Self-employed borrowers can qualify if they meet standard income verification guidelines.

Final Tips for a Smooth Mortgage Process

✅ Keep Business and Personal Finances Separate – This simplifies documentation and proves financial stability.
✅ Show Consistent or Increasing Income – Lenders look for stable income trends over the past two years.
✅ Work with a Mortgage Professional – A loan officer experienced in self-employed borrowers can guide you to the best loan options.

Ready to Buy a Home? Let’s Talk!

Navigating the mortgage process as a self-employed borrower can be complex, but with the right preparation, you can secure financing with confidence. If you're ready to explore your options, contact us today for personalized guidance!