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How To Get A Mortgage When You’re A Self-Employed Home Buyer 

  • Homeowners Insurance
  • Xavier Sabastian
  • 7 minutes

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The same kinds of mortgage loans available to those who are “traditionally” employed are also available to those who are self-employed. Credit, debt, down payment, and income are all evaluated in the same manner as applicants who plan to work for a living. The challenge comes in proving your earnings.

As a business owner, contractor, freelancer, or gig worker, you may need additional documentation than a W-2 employee to prove your income. Being self-employed shouldn’t prevent you from getting a mortgage or doing a refinance as long as you can prove to the lender that you have a stable income. 

Key takeaway

  • Improve your chances of getting a loan as a self-employed person by doing things like raising your credit score, making a higher down payment, and reducing your overall debt load. 
  • When applying for a mortgage, self-employed people may find it difficult to get approved because their income is lower after deducting business expenses. 
  • Mortgage choices for the self-employed include conventional loans, FHA loans, and bank statement loans. 
  • Another option is to find a co-signer or partner to apply for a joint mortgage with you. 

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Qualifying For A Mortgage When You’re Self-Employed

If you’re self-employed, you know the importance of being careful with your finances. It, together with the information provided here, will come in handy when it comes time to apply for a mortgage. 

What Are Mortgage Lenders Looking For?

Most Mortgage lenders will need a couple of documents before they actually consider you eligible for a mortgage: 

  • Income / Financial Stability 
  • The capacity of your business to produce sufficient income in the future 
  • The location and nature of your self-employment 
  • The financial strength of your business 

What Documents Do You Need To Provide?

A minimum of two years of consistent income from self-employment is often required to begin the home-buying process. 

Employment Verification 

  • There are various emails or letters considered as employment verification. These include letters and emails from: 
  • A professional organization that can attest or vouch to your membership  
  • Current clients 
  • A licensed, certified personal accountant (CPA) 
  • A Doing Business As (DBA)  
  • Evidence of insurance for your business  
  • Any business or state license that you hold 

Income Documentation 

If you can demonstrate a history of consistent earnings, mortgage lenders will be more likely to offer a loan. It’s important to remember that your credit history will play a role in determining your loan eligibility, regardless of how much money you currently make. 

Most lenders will need some of the following documents: 

  • Profit and loss statements, which may include a Form 1120S, Schedule C, or K-1, depending on your business structure 
  • Personal tax returns (including W-2s if your payment goes through your corporation)  
  • Bank statements are monthly or quarterly documents that your lender uses to verify that you have sufficient funds to fully cover a down payment 

What are the ramifications of being a business owner for less than two years?

Even if you’ve only been self-employed for a year and a half, you can still qualify for a mortgage. In the end, you’ll need to prove that you’ve been in business for at least a year and that you’ve been gainfully employed for the past two years. 

Your lender will thoroughly investigate your background to see if you have the education and training to stabilize your business. 

Tips To Put Your Best Application Forward

Tip 1: Check your Debt-To-Income ratio 

The DTI, or debt-to-income ratio, is the proportion of your monthly gross income that goes towards paying down debts. Lenders consider it since a lower DTI indicates that you are a less risky borrower. That frees up extra money each month to put towards your mortgage. 

Divide your monthly reoccurring debt by your pre-tax monthly income to get your DTI. The debt-to-income ratio (DTI) does not take into account variable monthly expenses such as those for utilities, property taxes, groceries, or maintenance. 

But if your DTI is over 50%, you should pay off some of your debt first If you want to get a mortgage. 

Tip 2: Keep a keen eye on your credit 

Credit scores are used by lenders to gauge the chances that borrowers will be able to meet their financial obligations. The credit report that shows your credit history doesn’t factor in how much money you make. Your credit score is more indicative of your financial stability than your DTI. 

Lenders also take your credit utilization ratio into account. The utilization ratio indicates how much of your total credit you are actually using. The same is true of your credit usage ratio; a lower number is better when applying for a mortgage. 

Tip 3: Keep business expenses separate 

Your credit utilization will rise if you use a personal card for work expenses like a new computer or office supplies. Your application can suffer as a result of this. 

Establish separate checking and credit card accounts for your business and personal spending. This will help you create a more positive, honest profile for your application. 

Self-Employed Mortgage Options

  • FHA loan 
  • Bank statement loan 
  • Joint mortgage 

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Disadvantages of Getting a Mortgage While Self-Employed

  • Extra paperwork required 
  • Tighter credit scoring  
  • Variable income 
  • Less understanding from lenders underwriters 

The Bottom Line

To meet the requirements for a mortgage as a self-employed person, you’ll need to go through some additional hurdles. Since your income depends on the success of your business, the main difference is that you will need to provide proof of your business income. 


Are Self-Employed Mortgages More Expensive? 

Certainly not! Compare loan estimates and pre-approval quotes from different lenders to ensure you’re getting the best rate. 

How Much Income History Do I Need for a Self-Employed Mortgage? 

If you’ve been self-employed in the same line of work for a while, it will go a long way towards getting you accepted for a mortgage. Two years of tax returns or bank statements showing income at or above the amount you need to afford the loan you desire are typically required. 

Is It Harder to Get a Mortgage if You’re Self-Employed? 

Self-employed people may have a more difficult time qualifying for a mortgage—more proof than is often required of those who have had the same W-2 employer for a while. Due to the higher risk associated with lending to self-employed borrowers, several banks refuse to do business with them. 

Can You Get a Mortgage if You’re Self-Employed? 

Yes, If you’re self-employed, don’t worry; you can still get a mortgage. Two years of tax returns detailing your self-employment income are often required. 

What is a self-employed mortgage? 

A lender consider a borrower as “self-employed” if they control 25% of the business or more or if they do not receive a W-2 as their primary source of income. 

How do I show self-employed income for a mortgage? 

Paystubs and W-2s are acceptable documentation of consistent income for homebuyers with typical jobs. But, for those who are self-employed, two years of individual tax returns may suffice as proof of income. Business tax returns (K-1, 1120, and 1120S) over the past two years. 

Do self-employed pay higher mortgage rates? 

A self-employed person’s mortgage interest rate may be the same as, or even lower than, that of an employee of a regular company. Several variables determine interest rates, including credit history, down payment amount, and loan term.

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