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Self-Employed? Here's How to Get a Home Loan

A critical factor for qualifying for a home loan is your income. Understandably, lenders need to know that you have a stable income that allows you to sustain a mortgage. While traditional homebuyers can prove this easily with a standard W2 from their employer, a self-employed borrower will need to show proof of income in a different manner. 

Income requirements for self-employed homebuyers. 

The most common issue for self-employed individuals borrowers establishing how much they claim as income against the amount the government decides they made in net income and recorded on tax returns. If you're self-employed, be prepared to provide the last two years of tax returns in addition to other supporting documentation when applying for a mortgage. 

The reason you'll need supporting documents in case there is a discrepancy between what you think income is versus what your taxes state. Clear these inconsistencies before applying for your loan, mainly because Fannie Mae, Freddie Mac, as well as FHA loan programs base their lending decisions on net income. 

Getting Ready To Apply 

Gather your documents. 

While most government-backed home loan programs ask for at least the last two years’ worth of tax returns, some conventional loan programs require only one. Consider this if you have been which self-employed for less than two years. Either way, we suggest you gather your last two tax returns if they are available. 

Additionally, gather these other important tax: 

  • Tax ID number 
  • Schedule C 
  • Schedule E Form 
  • 1120S
  • K-1 
  • Profit and Loss Statement 

You may also need additional documentation that proves your self-employment status, including:

  • Business license 
  • Letter from clients 
  • Miscellaneous documentation such as bond insurance, or membership to professional organizations 

Don’t write off nearly as much as in years past. 

Tax write-offs can male your net income appear low past tax so you may want to avoid writing everything off for your upcoming return as much as possible Talk with your accountant for more information about tax write-offs and how it affects your net income. 

You'll also want to make sure that your business doesn’t mingle with personal funds. 

With careful planning and scrupulous recordkeeping, getting a self-employed mortgage loan is no sweat! Our team of experienced mortgage professionals understands the challenges faced by self-employed borrowers, and we eagerly await to help you get started. 

Contact us today to be one step closer to buying the home of your dreams!

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