Get a mortgage when you're self-employed
Learn what to do and how to qualify
It's possible to qualify for a mortgage when you are self-employed. Lenders typically require you to document two to three years of business income. They can have higher credit score and financial requirements compared to borrowers whose income comes from salaries, too.
What income do you need for a mortgage when you're self-employed?
You don't necessarily need more income to get a mortgage when you are self-employed. But you'll probably have to provide more documentation that demonstrates your income is likely to continue and you make enough money to afford your mortgage payments. The documents needed can include:
- Two years of business tax returns including relevant schedules. Some lenders might ask for three years.
- Proof of income. Lenders might ask for bank statements, profit and loss statements, balance sheets, lists of assets, sources of additional income, or personal tax returns.
- Proof of business activity. This proof may include business licenses, letters from clients, statements from your accountant, or proof of business insurance.
It can be a good idea to keep your business income and your personal finances separate. This can make it easier for lenders to understand how much income your business earns.
Can deducting self-employment business expenses affect your application?
Yes. How many deductions you take for business expenses can affect the amount of money lenders might approve you to borrow. That's because deductions reduce your net self-employment income, which is the number lenders will consider when you apply for a mortgage.
Do self-employed borrowers need higher credit scores or better finances?
When you are self-employed, lenders might require you to have a higher credit score, make a larger down payment, have a lower debt-to-income ratio, or have more cash reserves to qualify for a mortgage.
Increasing your credit score, saving for a larger down payment, or paying down debts before you apply for a mortgage might increase your chances of getting approved. Having a co-borrower on the loan whose income comes from a salary can help as well.
Are some mortgages better for self-employed borrowers than others?
Different loans have different benefits and costs, but there isn't a type of mortgage that is better for self-employed borrowers compared to other borrowers. Most people are eligible to apply for Conventional and FHA loans. Learn more about types of mortgages.
Can you refinance when you're self-employed?
Yes. You can refinance your mortgage when you are self-employed. Lenders may ask for the same type of information you provide when you apply for a purchase loan.
It can be easier for self-employed individuals with VA or FHA loans to refinance their mortgages. That's because these loans have streamline refinance programs that often do not require proof of income to qualify.
Who is considered self-employed?
Lenders consider small-business owners, freelancers, consultants, contractors, and gig workers to be self-employed. If most of your income is reported to the IRS using 1099 forms rather than W2 forms, lenders are likely to say you are self-employed.
Why is it harder for self-employed people to qualify for mortgages?
It can be harder for self-employed people to get mortgages because lenders see their income as less predictable, which lenders consider riskier. That's the reason why mortgage lenders often ask for more documentation and may have higher credit and financial requirements too.