Top 20 Mortgage Questions and Answers for Self Employed

1. Can I Get a Mortgage If I’m Self-Employed?

Yes, self-employed individuals can obtain a mortgage. Lenders will review your income, credit history, debt-to-income ratio, and the stability of your self-employment to determine eligibility. Click here to see if you qualify.

2. What Documentation Will I Need to Provide?

You’ll likely need to provide two years of tax returns, profit and loss statements or bank statements, and have been in business for at least 2 years.

3. How Do Lenders Verify My Income?

Lenders typically use tax returns and profit and loss statements to verify your income. They may also use an average of your last two years’ income to determine your loan eligibility.

4. Is It Harder to Get Approved for a Mortgage When You’re Self-Employed?

It can be more challenging due to the variability of self-employed income. Providing ample documentation and having a good credit score and a low debt-to-income ratio can help. Click here to see if you qualify.

5. What Can I Do to Improve My Chances of Approval?

Maintaining a stable or increasing income, saving for a larger down payment, improving your credit score, and reducing your debt can all improve your chances of approval. Click here to see if you qualify.

6. How Do Lenders Calculate My Income?

Depending on which type of loan. Lenders often calculate your income based on the net profit reported on your tax returns not just your gross income. They can calculate income based on 12- or 24-month bank statements.  Click here to see if you qualify.

7. Can I Use Business Expenses to Qualify for a Larger Loan?

While business expenses can reduce your taxable income, they can also reduce the income considered by lenders, potentially affecting your loan amount.

8. What Types of Mortgages Are Available to Self-Employed Individuals?

Self-employed individuals can qualify for the same types of mortgages as anyone else, including conventional loans, FHA loans, and VA loans, depending on their eligibility. However, click here to see if you qualify.

9. Will I Need to Pay a Higher Interest Rate?

Not necessarily. If you have a strong financial profile, your interest rates can be comparable to those offered to traditionally employed borrowers.

10. What is a Debt-to-Income Ratio, and Why is It Important?

Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying debts. Lenders use it to gauge your ability to manage monthly payments and repay debts.  Click here to see what your Debt-to-Income Ratio. 

11. Can I Qualify for a Mortgage with a Recently Started Business?

Qualifying may be more challenging with a new business due to the lack of a long-term financial history. Lenders typically prefer at least two years of stable self-employment income.

12. How Much of a Down Payment Will I Need?

The down payment requirement varies by loan type but expect to need at least 3% for conventional loans. A larger down payment can improve your loan terms.

13. Are There Any Special Programs for Self-Employed Borrowers?

Yes, there are specific mortgage programs exclusively for the self-employed, you may find lenders who are more experienced with self-employed borrowers and offer more flexible underwriting. Click here to see if you qualify.

14. How Can I Prove My Income if It Varies?

Lenders will look at a two-year average of your income, but providing additional documentation like current contracts or invoices can help demonstrate income stability.  Click here to see if you qualify.

15. What if I Have a Bad Credit Score?

A lower credit score can make it harder to qualify, but you may still be eligible for certain loan types. Improving your credit score before applying can help.

16. Does the Type of Business Structure Affect My Application?

The business structure (sole proprietorship, LLC, corporation) can affect how you document your income but doesn’t necessarily affect your eligibility.

17. What Should I Avoid Doing Before Applying for a Mortgage?

Avoid taking on new significant debts, making large purchases on credit, or making drastic changes to your business structure or income.

18. Can I Count Income from Rental Properties?

Yes, income from rental properties can be considered, provided you can document it reliably through tax returns or lease agreements.  

19. What If I Use a Co-signer?

A co-signer with stable, verifiable income and a good credit score can improve your loan application, especially if your self-employed income is difficult to document.

20. How Long Does the Mortgage Process Take for Self-Employed Individuals?

The process may take longer than for traditionally employed individuals due to the additional documentation and verification required. Being well-prepared and understanding the specific requirements for self-employed individuals can significantly streamline the mortgage application process. Always consult with a mortgage professional to get personalized advice and ensure you meet all necessary criteria for your situation. Click here to see if you qualify.