Please ensure Javascript is enabled for purposes of website accessibility

This device is too small

If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.

Skip to main content

How to Get a Mortgage When You're Self-Employed

Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

A growing number of Americans are self-employed or working in the gig economy. If you're one of them and considering purchasing a home, you might be wondering how to get a mortgage when self-employed.

The bad news: Securing a home loan is challenging when you work for yourself. That's because lenders may not count all your income.

But there's good news, too. Mortgages for self-employed borrowers do exist. And by following a few simple steps, you can improve your chances of qualifying for one. Below, we'll go over how to get a mortgage when you're self-employed.

Steps to getting a mortgage when self-employed

If you're searching for mortgages for self-employed individuals -- whether to purchase a home or to refinance your existing housing debt -- follow these steps.

  1. Apply with lenders most likely to work with you. Some mortgage loan providers frequently offer mortgages for self-employed workers. And if you have an established relationship with a local bank or credit union, that lender may also be worth considering -- they may be more likely to lend to you because they know you.
  2. Provide thorough financial records. Any borrower needs to provide extensive documentation of income. This is especially important when you apply for mortgages for self-employed borrowers.
    You'll need your 1099 tax forms and several years of tax returns to demonstrate your yearly pay. Lenders also need proof your business maintains steady income, so be ready with recent bank statements and a profit-and-loss statement.
  3. Be persistent. The first lender or two may not approve your loan. Or they may charge high rates. Take your time. Rate shop with multiple mortgage lenders to find a loan that's right for you. Traditional borrowers need just a few quotes to compare, but you may need to apply with five or six mortgage lenders -- if not more -- for the best chance at a good rate.

How to calculate your self-employed income for a mortgage application

One of the trickiest parts of figuring out how to get a mortgage when self-employed? Not all of your income necessarily counts.

Generally, lenders look at net income on Schedule C of your personal tax returns if you don't file a separate tax return for your business. In some cases, lenders add back in income from certain tax deductions, such as for business use of your home, or depreciation. But most deductions can't be added back in. Your net income determines whether you qualify.

If your business files separate tax returns and you receive a portion of company profits or losses, your lender may also want to see K-1 tax forms. Lenders look at net profit. If you aren't 100% owner of the business, only your portion of the company's income counts in determining if you qualify for a loan. Lenders usually add back in depreciation, but most other tax deductions and any outstanding business debt obligations count against your income.

If your business income hasn't been steady over the past several years, lenders usually use a two-year average, or, if your business income is declining, give you credit only for the most recent year's income.

That means if you made $150,000 two years ago but $100,000 last year, the lender is likely to count at most $125,000 -- or likely just $100,000 of your earnings -- in deciding whether to give you a loan, and what amount you can borrow.

Mortgages for self-employed borrowers can seem more complex due to the amount of income verification needed. But if you can gather all the necessary paperwork, you should be able to verify your self-employed income.

What if you've only been self-employed for 1 year or less?

If you do not have two years of steady self-employment income, getting a mortgage when self-employed is challenging.

A few lenders who are very experienced with self-employed home loan borrowers may be willing to count some of your earnings from self-employment. You'll have a better chance of qualifying if you can show you worked in the same industry successfully for a year or two before starting your own business.

Getting approved for a self-employed mortgage

If you're not sure how to get approved for a mortgage when self-employed, try these four key steps to maximize your chances.

  1. Apply with a co-borrower who has traditional income. Mortgages for self-employed borrowers are easier to get with a co-borrower. Lenders are much more likely to approve you if there are two people on the hook for the debt, one of whom earns money from a traditional source.
  2. Boost your down payment. One big reason it's tougher to get mortgages for self-employed borrowers? Lenders view you as a riskier bet. After all, since you don't have a company that's promised you a paycheck, there is a greater chance your income sources will run dry.
    If you can reduce the level of risk you present, lenders are more likely to give you a self-employed home loan. Making a larger down payment reduces the risk in two ways: First, you're borrowing less, so the lender isn't putting as much money on the line. And second, you have a larger stake in the deal. If lenders have to foreclose, there's far less chance they'd lose money (since your bigger down payment gave you more equity).
    It can be difficult to save for a down payment, but by monitoring your budget carefully and putting in extra hours, you can do it. Use our mortgage calculator to see how your monthly payment will change with a larger down payment.
  3. Make sure your financial credentials are impeccable. It's not just a high down payment that reduces the risk you present to lenders -- you can also look like a safer bet if you have a strong credit score and plenty of income. If your debt-to-income ratio is lower, it may not matter as much if lenders don't count all your self-employment income when deciding whether to approve your loan. And if you have good credit, you'll have a wider choice of mortgage loan providers willing to approve you.
    Improving a credit score can be a challenge, but paying down debt and making sure there are no errors on your credit report can raise your credit score quickly.
  4. Be careful about which tax deductions you claim. A common problem for individuals who are looking at mortgages for self-employed borrowers is that businesspeople often reduce their taxes by claiming every possible deduction. That lowers the taxable income that lenders consider when deciding if you can borrow and how large a mortgage you qualify for.
    If you know you want to buy a home soon, you might be a little more judicious with the deductions you claim. That could mean you have to pay a higher tax bill if you don't write off as many business expenses, but it could make all the difference in getting approved for a mortgage. You can also time large tax-deductible business expenses so you don't incur them shortly before trying to borrow.

Self-employed and need a credit card? Check out The Ascent's guide to the best credit cards for self-employed individuals and pick the card that's best for you.

Types of self-employed mortgages

Most buyers interested in getting a mortgage when self-employed do best with the same kinds of loans as other borrowers.

This could mean conventional mortgages not backed by government lenders. Or you could consider FHA, VA, or USDA loans if you want a government-insured mortgage. You can learn more about loan types in our beginner's guide to home loans and more about the best FHA lenders when you're ready to get started.

There are some kinds of mortgages that require very little documentation -- although they're much harder to come by now, due to the subprime mortgage crisis. These include:

  • No doc loans: These are exactly what they sound like. Lenders don't request financial documentation to prove your income claims. These are also called Alt-A mortgages. They're riskier for lenders, so not all mortgage lenders offer them. They usually come with high interest rates.
  • Stated income/stated asset mortgages: Also called SISA loans, these loans require a little more documentation than no-doc mortgages because lenders want to verify your sources of income. But they still require less financial paperwork than most types of mortgages.

Finding self-employed mortgage lenders

There's no question that self-employed borrowers face added challenges. Answering the question of how to get a mortgage when you're self-employed isn't simple. But local banks, national banks, online lenders, and credit unions may all be willing to offer you a loan if you're a well-qualified borrower with proof of steady income.

To find mortgages for self-employed borrowers, start by talking to lenders you already work with, or those who advertise that they're willing to look at non-traditional income. Aim to get pre-qualified by several mortgage lenders. Compare their offers; see how they align with current mortgage rates; and home in on the ones that give you the best deal on a self-employed home loan.

By putting in the effort, you can find the right mortgage for you, and your dream of becoming a homeowner can come true.

Still have questions?

Here are some other questions we've answered:

The Ascent's best mortgage lenders

If you want to uncover more about the best mortgage lenders for low rates and fees, our experts have created a shortlist of the top mortgage companies. Some of our experts have even used these lenders themselves to cut their costs.

FAQs

  • To get a self-employed home loan, apply after earning at least two years of steady income while working for yourself. Raise your credit score and put down the largest down payment possible. Make sure to shop around with mortgage loan providers to find one who'll approve you for an affordable loan without income from traditional sources.

  • Generally, lenders look at your net income after reviewing tax forms such as your Schedule C or K-1s. You may have to provide profit-and-loss statements, too. Lenders usually average your income over two years. However, if your income is declining, they may count only the lower amount of income you earned in the most recent year.

  • Almost all lenders make loans to self-employed borrowers, provided they are well qualified. However, some banks, online lenders, or credit unions have more experience working with buyers who do not have income from traditional sources.

    Shop around for a lender catering to those who are self-employed, or ask your current bank or credit union if they can help. They may be more willing to approve your loan because of your established relationship.

About the Author