Self-Employed
Self-employed income often fluctuates and business owners routinely deduct expenses to minimize their tax liabilities, qualifying can require a bit more strategy than it does for traditional W-2 employees.
Typical Requirements
- Employment History: Lenders typically require at least 2 years of stable self-employment in the same field. In some cases, 1 year may be considered if you have prior experience and a continuously stable income.
- Income Calculation: Lenders look at your net income (profits after business deductions) rather than gross revenue. They average your income over the last 24 months.
- Debt-to-Income (DTI) Ratio: Most lenders prefer a DTI ratio of 43% or lower, though some will accept up to 50% if you have a high credit score or substantial reserves.
- Credit Score: A minimum credit score of 620 is generally expected for standard conventional loans, though higher scores (700+) yield better rates and terms.
Core Documentation Needed
Applying for a self-employed mortgage requires more extensive paperwork to prove the viability of your business. You will typically need to prepare:
- Personal & Business Tax Returns: Full tax returns (including all schedules) for the past 2 years.
- 1099 Forms: If you are a freelancer or independent contractor, these will document your earnings.
- Business Documents: Depending on your business structure, you may need to provide a business license, incorporation documents, or a year-to-date Profit and Loss (P&L) statement.
- Bank Statements: Personal and business bank statements covering the last 12 to 24 months are often required to verify cash flow.
Alternative Documentation Options
- 12 or 24 months of personal or business bank statements
- 1099’s only without tax returns
- Profit and Loss statements prepared by a CPA
