Yes, you can get a mortgage when self-employed, but it requires additional documentation and income verification. Lenders typically average your adjusted gross income from 2 years of tax returns and may add back non-cash expenses like depreciation. Self-employed borrowers need tax returns, profit/loss statements, and bank statements for qualification.
Can you get a mortgage self employed? Absolutely. While the process requires more documentation than traditional employment, self-employed individuals including freelancers, contractors, and business owners can successfully qualify for mortgages. This comprehensive guide explains how to get a mortgage when self employed, whether lenders use gross or net income, and how to calculate qualifying income for mortgage approval.
Self-employed individuals represent over 16% of the U.S. workforce, and lenders have adapted their processes to serve this growing market. You can definitely get a mortgage when self-employed, but the qualification process differs significantly from traditional W-2 employees.
Lenders consider various forms of self-employment, including:
How do mortgage lenders calculate self-employed income? The process is more complex than W-2 income verification and involves analyzing multiple years of financial data to determine consistent, sustainable earnings.
Basic Formula:
Qualifying Income = (Year 1 AGI + Year 2 AGI) ÷ 2 + Add-backs
Where:
| Income Component | 2023 | 2024 | Notes |
|---|---|---|---|
| Gross Business Income | $125,000 | $140,000 | From Schedule C |
| Business Expenses | $35,000 | $38,000 | Deductible expenses |
| Depreciation (Add-back) | $8,000 | $9,000 | Non-cash expense |
| Net Qualifying Income | $98,000 | $111,000 | After add-backs |
| Average Annual Income | $98,000 | $111,000 | ($98,000 + $111,000) ÷ 2 = $104,500 used for qualification |
Do mortgage lenders use gross or net income for self-employed borrowers? This is one of the most common questions from self-employed applicants, and the answer depends on the loan program and documentation method.
| Loan Program | Income Basis | Documentation Required |
|---|---|---|
| Conventional (Tax Return) | Adjusted Gross Income + Add-backs | 2 years tax returns, P&L statements |
| Bank Statement | Gross deposits × 50% (typical) | 12-24 months bank statements |
| Asset-Based | Asset depletion method | Asset statements, no income verification |
| P&L Only | Net business income | CPA-prepared P&L, business verification |
Traditional Method: Lenders use net income (adjusted gross income) from tax returns but may add back non-cash expenses like depreciation to increase qualifying income.
Bank Statement Method: Lenders analyze gross deposits and apply a percentage (typically 50-75%) to account for business expenses, resulting in higher qualifying income for many borrowers.
Best Strategy: Work with a lender who offers multiple programs to determine which income calculation method provides the highest qualifying amount.
How to get a mortgage when self employed starts with proper documentation. Self-employed borrowers need significantly more paperwork than W-2 employees to verify income stability and business viability.
| Document Type | Time Period | Purpose |
|---|---|---|
| Personal Tax Returns (1040) | 2 years | Income verification and tax compliance |
| Business Tax Returns | 2 years | Business income and expense verification |
| Schedule C (Sole Proprietors) | 2 years | Business profit/loss documentation |
| Profit & Loss Statement | Year-to-date | Current business performance |
| Business Bank Statements | 3-12 months | Cash flow verification |
| Personal Bank Statements | 2-3 months | Asset verification and reserves |
| Business License | Current | Legal business verification |
| CPA Letter | Current year | Income stability verification |
Understanding which loan programs work best for self-employed borrowers can significantly impact your qualification chances and loan terms.
1. Conventional Conforming Loans
2. Bank Statement Loans
3. Asset-Based Mortgages
Self-employed borrowers face unique challenges in the mortgage process. Here are the most common issues and proven solutions:
Problem: Writing off legitimate business expenses reduces taxable income, lowering mortgage qualification.
Solution: Consider bank statement loans or work with a CPA to optimize tax strategy 2-3 years before applying.
Problem: Seasonal or project-based income appears unstable to lenders.
Solution: Document contracts, retainers, or recurring client relationships to demonstrate income stability.
Problem: Less than 2 years in business makes qualification difficult.
Solution: Document previous employment in same field, show education/licensing, or consider asset-based programs.
For Tax Return Qualification:
For Bank Statement Qualification:
Understanding the timeline helps set proper expectations for the mortgage process:
| Phase | Timeline | Key Activities |
|---|---|---|
| Pre-Qualification | 1-2 days | Initial application, credit check, preliminary approval |
| Documentation Review | 7-14 days | Tax return analysis, income calculation, asset verification |
| Underwriting | 10-21 days | Detailed file review, additional documentation requests |
| Appraisal & Final Approval | 7-14 days | Property appraisal, final underwriting approval |
| Closing Preparation | 3-7 days | Final conditions, closing document preparation |
Can you get a mortgage self employed? Absolutely. While the process requires more documentation and strategic planning, millions of self-employed individuals successfully obtain mortgages every year. The key is understanding how lenders evaluate self-employed income and choosing the right loan program for your specific situation.
Remember that different lenders have varying expertise with self-employed borrowers. Shop around and consider working with mortgage brokers who specialize in non-traditional income documentation. With proper preparation and the right approach, homeownership is absolutely achievable for self-employed individuals.
Ready to start your self-employed mortgage journey? Use our mortgage calculator to estimate how much home you can afford based on your self-employed income, or explore our loan comparison calculator to understand different loan options and monthly payments.