Challenges for Self-Employed Borrowers
Self-employed borrowers often face more hurdles in the mortgage process compared to W-2 employees. Since their income can be irregular, and tax deductions often reduce taxable income, lenders apply additional scrutiny. Here’s what borrowers need to know about qualifying for a mortgage when self-employed.
How Lenders Calculate Self-Employed Income
-Tax Returns (Personal & Business) – Most conventional loans require at least two years of tax returns.
-Profit & Loss (P&L) Statements – Used to determine recent income trends.
-Bank Statements – Some loan programs allow income verification based on bank deposits rather than tax returns.
Lenders use net income rather than gross revenue, and some deductions can be added back (such as depreciation and one-time expenses).
Loan Options for Self-Employed Borrowers
-Conventional Loans – Require two years of tax returns and consistent income.
-Bank Statement Loans – Use 12-24 months of deposits instead of tax returns.
-P&L Only Loans – Ideal for well-documented businesses.
-Non-QM Loans – More flexible guidelines but often come with higher rates.
Tips to Improve Mortgage Approval Odds
-Reduce Excessive Write-Offs – Higher reported income improves loan eligibility.
-Separate Business & Personal Finances – Lenders prefer clean financial records.
-Maintain Strong Credit – A high credit score can offset income concerns.
-Work with a Mortgage Professional – Understanding options early can streamline the process.
Common Misconceptions About Self-Employed Mortgages
"I don’t need tax returns if I own my business."
"I can qualify based on my business revenue."
"My accountant can 'adjust' my income for a better loan."
The best way to set yourself up for success is to work with a mortgage expert that can navigate the complexities of self-employment. To speak with one of our mortgage experts today, click the link below: