What You Need to Know About Securing a Mortgage When You’re Self-Employed
Being your own boss comes with many advantages—flexibility, independence, and control over your income. However, when it comes to buying a home, self-employment can present unique challenges. Mortgage lenders look for stable, verifiable income, and without a W-2 or a traditional paycheck, proving financial reliability can be more complex. But don’t worry—self-employment doesn’t mean homeownership is out of reach. Here’s what you need to know about getting approved for a mortgage as a self-employed individual.
Can You Get a Mortgage if You’re Self-Employed?
Yes! Many self-employed borrowers successfully secure home loans. The key is demonstrating financial stability and meeting the same core criteria as traditional borrowers: a strong credit history, sufficient assets, and a steady income stream. Challenges can arise if you’ve been self-employed for a short time or if your reported income appears lower due to tax deductions. Understanding the process and preparing accordingly can make all the difference.
Steps to Qualify for a Mortgage When You’re Self-Employed
1. Determine Your Employment Classification
Lenders will consider you self-employed if your primary income comes from:
- Running a business as a sole proprietor or independent contractor
- Owning a business with a partnership structure
- Earning most of your income as a freelancer or gig worker Even if you have a part-time W-2 job, lenders will prioritize your self-employment income if it’s your main source of earnings.
2. Gather Essential Documentation
Because your income isn’t as straightforward as a salaried employee’s, lenders may request additional documents to verify stability and earnings, such as:
- Business license and insurance (if applicable)
- Two years of personal and business tax returns
- Recent bank statements and profit-and-loss statements
- Articles of incorporation or partnership agreements
- Records of unpaid accounts receivable
3. Showcase Business Stability
Since lenders are concerned with income consistency, providing extra evidence of your business’s success can strengthen your case. Consider preparing:
- A description of your business and services
- Professional certifications and licenses
- A website showcasing your work
- Historical tax returns showing growth
- Active contracts or retainers with clients
- A business plan outlining future revenue projections
4. Shop for the Right Lender
Not all lenders evaluate self-employment income the same way. Some specialize in working with independent business owners and offer more flexible underwriting guidelines. FHA loans, for example, tend to be more accessible than conventional loans due to their government backing. Working with an experienced mortgage broker can help you find the right fit.
Mortgage Options for Self-Employed Borrowers
Self-employed individuals have access to various mortgage options, including:
- Conventional Loans (Fannie Mae & Freddie Mac): Require a strong credit score and a history of consistent income.
- FHA Loans: Backed by the Federal Housing Administration, these loans require a lower down payment and have more lenient credit requirements.
- VA Loans: Available to eligible military members and veterans, these loans require no down payment in many cases.
- Non-Qualified Mortgages (Non-QM): These loans use alternative income verification methods, such as bank statements, instead of tax returns.
Tips to Strengthen Your Mortgage Application
1. Improve Your Credit Score
A higher credit score can lead to better loan terms. Pay bills on time, lower your credit utilization, and correct any inaccuracies on your credit report.
2. Lower Your Debt-to-Income Ratio (DTI)
Lenders prefer a DTI of 43% or lower. Reduce debt and avoid taking on new loans before applying for a mortgage.
3. Increase Your Down Payment
A larger down payment can improve your approval odds and potentially lower your interest rate. Aim for at least 20% if possible.
4. Consider a Co-Signer or Co-Borrower
If your income alone isn’t enough, adding a co-signer or co-borrower with strong financials can help increase your borrowing power.
What If You’ve Been Self-Employed for Less Than Two Years?
It’s still possible to qualify for a mortgage with less than two years of self-employment history, especially if you have prior experience in the same industry. Providing evidence of stable income, a solid credit score, and strong financial reserves can improve your chances.
What to Do If You Don’t Qualify Right Away
If you don’t get approved for a traditional mortgage, explore alternative loan options like non-conforming loans or home equity financing if you already own property. Additionally, working with a mortgage professional can help you strategize ways to strengthen your application.
The Bottom Line
Being self-employed doesn’t mean you have to struggle to secure a mortgage. With careful preparation—maintaining good credit, documenting stable income, and choosing the right lender—you can successfully navigate the mortgage process and achieve homeownership. Avanti Way Financial is here to guide you through every step, ensuring you find the best financing solution for your needs. Reach out today to explore your options and start your journey toward homeownership!
