Can Freelancers and Self Employed People Get Mortgages?
The short answer is yes.
If you’re self employed, own a business, work as a freelancer, independent contractor, consultant, or receive 1099 income, you can absolutely qualify for a mortgage. However, the approval process is often different than it is for someone who receives a regular W2 paycheck.
Many self employed borrowers assume they’ll have trouble qualifying because they write off business expenses to reduce their taxable income. Fortunately, today’s mortgage market offers several loan options designed specifically for entrepreneurs and business owners.
Why Is It Harder for Self Employed Borrowers?
Unlike a salaried employee with predictable income, self employed borrowers often have fluctuating earnings from year to year.
Mortgage underwriters must determine whether your income is stable, predictable, and likely to continue. Fannie Mae generally requires lenders to review a two year history of self employment and evaluate the consistency of your qualifying income. [1]
The challenge is that many successful business owners intentionally reduce their taxable income by claiming legitimate business deductions.
While that may lower your tax bill, it can also reduce the income available for mortgage qualification.
Conventional Loans for Self Employed Borrowers
Many self employed borrowers qualify for conventional financing.
If you own 25% or more of a business, mortgage guidelines generally classify you as self employed, and your qualifying income is calculated using business tax returns and other supporting documentation. [6]
Underwriters review items such as:
- Personal tax returns
- Business tax returns
- Profit and Loss statements when required
- Balance sheets in certain situations
- Business bank statements
- Year to date income
- Business stability and likelihood of continued operation
Every file is analyzed individually.
What If My Tax Returns Show Very Little Income?
This is one of the most common questions I receive.
Many business owners have excellent cash flow but relatively low taxable income because of depreciation, vehicle expenses, equipment purchases, retirement contributions, and other legitimate deductions.
If that’s your situation, a traditional conventional loan may not produce the qualifying income you need.
Fortunately, there are alternatives.
Bank Statement Loans
A Bank Statement Loan is one of the most popular financing options for self employed borrowers.
Instead of relying primarily on tax returns, these programs evaluate deposits shown on your personal or business bank statements over a specified period, often 12 or 24 months.
These loans may be ideal for:
- Business owners
- Consultants
- Realtors
- Independent contractors
- Medical professionals
- Attorneys
- Freelancers
- Gig economy workers
If your business generates strong cash flow but your tax returns don’t tell the whole story, a bank statement loan may be worth considering.
Asset Depletion Loans
Some borrowers have substantial savings, investment accounts, or retirement assets but little reportable monthly income.
Asset depletion programs may allow eligible borrowers to qualify by using a portion of their liquid assets as qualifying income.
This option is often attractive for:
- Retirees
- High net worth individuals
- Investors
- Business owners with significant reserves
DSCR Loans for Real Estate Investors
If you’re purchasing or refinancing an investment property, you may not need to document your personal income at all.
Debt Service Coverage Ratio, or DSCR, loans qualify primarily based on the property’s rental income rather than your personal tax returns.
These loans have become increasingly popular with real estate investors looking to expand their portfolios.
Documents You May Need
Depending on the loan program, your lender may request:
- Personal tax returns
- Business tax returns
- Profit and Loss statement
- Business license
- CPA letter
- Business bank statements
- Personal bank statements
- Year to date financial statements
The exact documentation depends on the loan type and your individual circumstances.
Don’t Assume You Won’t Qualify
Many self employed borrowers assume they need perfect tax returns or exceptionally high income to qualify for a mortgage.
That’s simply not true.
With today’s wide variety of loan programs, many freelancers, consultants, entrepreneurs, and business owners have more financing options than ever before.
The key is choosing the right loan program based on how you earn your income.
Work With a Mortgage Advisor Who Understands Self Employed Income
Self employed mortgage financing requires more than plugging numbers into an automated system.
It requires understanding tax returns, business structures, cash flow, and alternative documentation programs.
As a Certified Mortgage Advisor serving borrowers throughout California, I help self employed clients compare conventional loans, jumbo financing, bank statement loans, asset depletion loans, DSCR loans, and other Non QM programs to find the solution that best fits their financial picture.
If you’re self employed and wondering whether you qualify, I’d be happy to review your income, explain your options, and provide a customized mortgage strategy.
You may be closer to homeownership than you think.
