Getting a mortgage when you are self-employed is absolutely possible, but it takes a little more preparation. Lenders look at self-employment income differently than W-2 income, so understanding what they need can make the process smoother.
The short answer: lenders usually look at a longer history of your self-employment income, your tax returns and your business finances. Keep good records, plan ahead and talk with a loan officer who works with self-employed borrowers.
How lenders view self-employment income
When you are self-employed, your income can vary from month to month and year to year. Lenders want to see that your income is stable and likely to continue. To do that, they typically look at:
- Your net business income, not just your gross revenue
- Your personal and business tax returns, often for the last two years
- Your business expenses and deductions
- The stability and trend of your income over time
Because self-employed borrowers often claim deductions that lower their taxable income, the income a lender can use may be lower than you expect.
Documents you will likely need
Be prepared to provide:
- Personal tax returns, often for the last two years
- Business tax returns, if your business is a separate entity
- Year-to-date profit and loss statement
- Business bank statements
- A business license or other proof that your business is active
- Documentation for any other income
Some lenders offer bank-statement programs that let qualifying self-employed borrowers use bank statements to show income instead of traditional tax returns. Ask your loan officer whether this is an option for you.
Tips to prepare for a self-employed mortgage
- Keep clean records: separate business and personal finances with dedicated accounts.
- Plan ahead: start organizing your documents before you apply.
- Watch your deductions: large deductions can lower the income a lender can use.
- Show stability: consistent or growing income is easier to underwrite than income that drops.
- Save for your down payment and reserves: a larger down payment and reserves can strengthen your file.
- Avoid new debt: keep your debt-to-income ratio low before you apply.
Common challenges for self-employed borrowers
- Variable income: lenders may average your income over time, which can lower the number they use.
- Deductions: business expenses that lower your taxes also lower your qualifying income.
- Short history: most lenders want at least two years of self-employment income.
- New business: a very new business may not have enough history to show stable income.
How to strengthen your application
- Provide clear, organized and complete documentation.
- Show a stable or growing income trend.
- Keep personal and business finances separate.
- Maintain good credit.
- Save for a down payment and reserves.
- Work with a loan officer experienced with self-employed borrowers.
Frequently asked questions
Can I get a mortgage if I am self-employed? Yes. Self-employed borrowers can qualify for mortgages. Lenders review your income history, tax returns and business finances.
How much self-employment history do I need? Most lenders want at least two years of self-employment income, though some programs may have different requirements.
Can I use bank statements instead of tax returns? Some lenders offer bank-statement programs for qualifying self-employed borrowers. Ask your loan officer if this is an option.
Do deductions hurt my mortgage application? Deductions lower your taxable income, which can lower the income a lender can use. Keep good records and talk with a loan officer about your situation.
Ready to get started?
When you are ready, get a free quote or get pre-approved with Alex.
You can also call Alex Al-Ammar at (313) 992-9898 or email Alex@vestalending.com.
This article is for general information only. It is not legal, tax or financial advice. Self-employment income and loan requirements vary by lender and program. Speak with a qualified professional about your individual situation.
