How to get a self-employed mortgage

Self-employed mortgage requirements

If you’re worried that you can’t qualify for a mortgage as a self-employed person, rest assured that you certainly can, but the process is a bit more involved. The traditional mortgage lending process is based heavily on W-2s as proof of income. But as a small-business owner or contractor, your income might fluctuate, which can make obtaining a traditional mortgage difficult.

Documenting income from self-employment

You’ll still need to meet the same standards as traditional borrowers, including credit score, debt-to-asset ratio, proof of income and funds for a down payment. But because your income doesn’t come from a regular paycheck, you’ll likely have to take a few extra steps to prove your financial stability.

Before applying for a mortgage, you’ll want to ensure you have the documentation necessary to support your income and prove the health of your business. Instead of pay stubs, self-employed borrowers often provide 12 to 24 months of bank statements, a year-to-date profit and loss (P&L) statement or even a letter from your accountant proving income stability.

3 steps to getting a self-employed mortgage

Here’s how to apply for a mortgage if you’re self-employed or have other sources of nontraditional income:

1. Prepare your financial documents

Consistency counts when proving your self-employed income to your lender. Carl Holman, director of marketing at Foundation Mortgage, told us, “At a minimum, lenders want to see consistent deposits that match the story of your business. Bank statements, tax returns or P&L statements need to be organized chronologically and easy to follow.”

He recommends hiring a certified public accountant (CPA) to help you prepare a clean package that neatly displays all relevant documentation. “This not only speeds up the process but also shows the lender that you take your finances seriously,” Holman said.

Here are some documents you may want to include:

• At least two years of bank statements
• At least two years of tax returns
• P&L statements with growth projections
• Letter from your accountant verifying steady income, as a substitute for an employment letter
• Trade name registration
• Business licenses or other relevant certificates

As you prepare your documentation, don’t sweat about irregular income or other variables. “Few entrepreneurs have perfectly level income month to month,” Holman said. “A smart strategy is to demonstrate overall growth trends or provide an average across a long period. Lenders want reassurance that the business is viable and sustainable, even if certain months are slower,” he told us.

It can also help to include a short note explaining any irregularities in your income. For example, said Holman, “if a borrower can show that income dipped during COVID but rebounded in the last two years or that they reinvested profits into scaling their business, that narrative helps.”

Lenders often average income over the past two years, but a strong recent year can still carry a lot of weight, Holman said.

2. Calculate your income

While traditional lenders often rely on tax returns to calculate your income, this isn’t always the best method for self-employed individuals. Instead, said Holman, many nontraditional mortgage lenders calculate income based on average monthly deposits from bank statements, gross revenue trends or CPA-certified income figures.

“It’s about capturing the reality of what a business owner truly earns and can afford, not just what’s left after deductions,” Holman said, and that means you may have to show deductions and expenses as part of your mortgage application. Your CPA or accountant can help you calculate your self-employed income, taking into account more obscure line items, like depreciation of assets.

3. Build a strong application

Submitting a strong application is the key to getting a mortgage. Holman shares a few steps you can take to help your lender view your application in the most positive light:

Maintain good credit

Having an excellent credit score is one of the best ways to strengthen your application. This shows you’re committed to making payments on time and can manage your debt effectively.

Before applying for a mortgage, pull a copy of your credit report. Check it for any mistakes or inconsistencies. If you spot any, reach out to the creditor to see if they’ll remove or fix it.

Reduce your debt

If you’re working with a less-than-stellar credit score or have a high debt-to-asset ratio (a key factor for most lenders), consider taking six months to reduce revolving debt before applying for a mortgage. A temporary side hustle could support this endeavor.

Build liquid savings

Your lender will want to see steady savings that show you can handle expenses even with irregular income. Showing consistent savings and the ability to make a healthy down payment can help improve your chances of qualifying.

Keep your documentation organized

As an entrepreneur, you’re likely already keeping well-organized records, since this helps at tax time. That same attention to detail can also boost your chances of getting a mortgage.

The biggest mistake is underestimating how much documentation will be needed, said Holman. “Waiting until the last minute to pull together statements or overexplaining inconsistent deposits can slow things down,” he said.

» MORE: Securing a mortgage

Alternative loan options

If you find you’re unable to qualify for a traditional mortgage, consider these two alternative loan options that work well for self-employed borrowers:

Nonqualified mortgages

A nonqualified mortgage (non-QM) loan can be a good option if your income or finances don’t fit traditional standards. “Non-QM lending shines — it’s designed to evaluate the true earning power of self-employed borrowers rather than disqualify them for not fitting a cookie-cutter mold,” Holman told us.

The most popular type of non-QM loan for self-employed people is the bank statement loan. With this type of loan, the lender uses your bank statements as proof of income rather than your tax documents.

Bank statement loans, 1099-only loans, P&L loans and even asset-qualifier programs are all great options for self-employed people, said Holman. “The pros are flexibility and common-sense underwriting; the cons are that rates can be slightly higher, and guidelines vary more widely than agency loans,” he said.

That flexibility means underwriters can account for temporary income dips. For instance, if you reinvested profits into your business one year and earnings bounced back the next, a non-QM lender may view that as a positive growth strategy rather than a setback.

Apply with a co-signer

Don’t quite have everything in order to apply for a mortgage on your own yet? There’s no shame in asking someone to act as a co-signer for you. Your co-signer should be someone with whom you have a long-standing, trusting relationship, and they should have a strong credit and payment history of their own.

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