How to Get a Mortgage as a Self-Employed Borrower
- 14 Days To Close
- Feb 21
- 4 min read
TLDR; If you're self-employed, lenders look closely at your tax returns to see stable income. While deductions are great for taxes, too many might make your income look smaller to lenders. Balance deductions with showing a healthy net income. Get organized with paperwork, maintain good credit, and aim for consistent income. Basically, be tax-smart and mortgage-smart to streamline your financing.
Getting a mortgage when you're self-employed can feel intimidating—like every detail of your fluctuating finances is under a microscope - but with the right preparation, it’s completely doable. Unlike traditional W-2 employees, lenders view 1099 self-employed applicants through a slightly different lens. They prioritize stability, consistency, and proof of income. To qualify, you’ll need to demonstrate that your business is thriving, your income is reliable, and your financial habits are disciplined.
The process might take a little extra paperwork, but knowing what lenders look for is the first step to getting approved. Even if you're not ready to buy yet, we’ve got a key tip you can start using today to improve your chances when the time comes.
Proving Your Income: Beyond W-2s
One of the biggest hurdles for self-employed borrowers is proving income without traditional pay stubs. Lenders typically require two years of tax returns (personal and business) to assess your earnings. They’ll calculate your average income using Schedule C, profit-and-loss statements, or 1099 forms. If your income fluctuates, focus on showcasing steady cash flow or retained earnings. Tools like Monarch Money, QuickBooks Solopreneur or FreshBooks can help organize financial records, making it easier to present a clear picture of your finances.
Credit Score: Does Self-Employment Demand a Higher Number?
While a higher credit score never hurts, self-employed borrowers don’t necessarily need perfect credit. Generally, most lenders prefer scores of 680 or above to offset perceived risk. A strong credit history signals responsibility, especially if your income is variable. Pay down debts, avoid new credit inquiries before applying, and review your credit report for errors. Platforms like Credit Karma or Experian offer free tools to monitor and improve your score.
Mortgage Ready: Key Documents for Independent Contractors
To streamline your home loan application, gather these 5 important documents before you apply. Lenders use these to verify your income and business stability:
Two Years of Tax Returns (Personal & Business) show a two-year history of your income trends and stability. You can get these from your tax records. If you used TurboTax, for example, to file your taxes, you can download past forms from your account.
Profit & Loss Statements (P&L) for the current and previous year provide a financial snapshot of your business’s performance. You can create these using accounting software like QuickBooks or FreshBooks, or by using spreadsheets that detail your income and expenses.
Bank Statements (Personal & Business) from the last two to three months verify recent income and cash flow activity. These can be downloaded directly from your bank’s website or requested from your bank.
Business Registration/Licenses must be current and valid to confirm that your business is legally operating. These documents can be obtained from your state or local government’s business licensing or registration agencies.
Client Contracts or Invoices, especially for freelancers, demonstrate ongoing client relationships and current income streams. Providing recent and active contracts or invoices helps show proof of ongoing work and earnings.
Bonus Doc!
Year-to-Date P&L (if income recently increased). This highlights recent positive income growth up to the most recent month or quarter. Update your P&L to include figures up to the most recent period to showcase improved earnings.
Having these documents prepared will significantly speed up your mortgage process!
If you have questions or need help on gathering these docs, give us a call at (813) 343-4775. We're experts in financing self-employed borrowers and would love to help you with yours.
Special Programs for Freelancers and Business Owners
Did you know there were specialized mortgage programs cater to self-employed borrowers? Bank Statement Loans, for example, use bank deposits instead of tax returns to verify income. FHA loans and VA loans (for eligible veterans) also offer flexible requirements. Additionally, some independent lenders, like 14 Days To Close have streamlined processes designed especially for for freelancers. Explore options with a mortgage broker who understands self-employment nuances.
Common Challenges (and How to Overcome Them)
If you're self-employed and looking to buy a home, a few smart strategies can help you strengthen your mortgage application and make approval easier. One of the best things you can do is keep your taxable income as high as possible for at least two years before applying. 💡 Lenders look at your net income after deductions, so minimizing write-offs for at least two years before applying can make a big difference in how much you qualify for.
Building a larger down payment—ideally 20% or more—is another way to improve your approval odds. A bigger down payment reduces the lender’s risk, which can lead to better loan terms and lower interest rates. If possible, start setting aside extra savings well before you plan to buy, giving yourself more flexibility when it’s time to secure financing.
Applying with a co-borrower who has steady W-2 income can also be a serious help. If your spouse or partner has a reliable paycheck, adding them to the loan can make your application stronger by balancing out any fluctuations in your self-employed earnings.
Finally, keeping your credit score high and separating business and personal finances can help streamline the process. Lenders want to see financial stability, so maintaining low debt, consistent income deposits, and well-organized records can make qualifying for a mortgage much smoother. With the right approach, self-employed buyers can set themselves up for success and move forward with confidence.
When you stay ready, you never have to get ready. Start preparing early—organize financial documents, pay off debts, and stabilize your income. For personalized advice, consult a CPA or financial advisor familiar with self-employment. When you're ready to start your home buying journey, we're here to help!
As a self-employed homebuyer, what's feeling like the biggest hurdle for you right now?
Proving consistent income when it… isn't?
Gathering all. the. papers.
Credit score stress
The lender search is… exhausting!