Self-employed borrowers can qualify for a mortgage, but lenders usually examine income consistency, documentation, and business deductions more closely than they do for W-2 applicants. The key question is not just how much your business earns, but how much qualifying income remains after expenses and how well you can document it.
There’s a lot to like about having your own business. You don’t report to The Man, you get to set your own hours, and wow, those are some attractive tax write-offs you can take advantage of. Sounds like the sweet life, right?
If you’re self-employed, you know that most of that is just plain fantasy: you probably work longer hours than you did at your “regular job,” and instead of just one boss, now you have many—your customers and clients.
But those great tax write-offs are out there, after all no one wants to pay more taxes: entertainment, travel, business mileage and more. A good accountant can save you thousands of dollars in taxes by understanding how many ways you can claim business expenses. If you are a sole proprietor (as most self-employed people are), you will file a 1040 or Profit or Loss Business Form aka Schedule C along with your tax return. This form claims every legitimate business expense you can think of for the tax year—and it can reduce your tax bill dramatically.
However, the goal is to get a home mortgage as a self-employed buyer, right? Mortgage Lenders looks at the NET income, (or the money left over after all your business expenses) then, they use that number to decide whether to approve the loan. If you and your accountant were especially aggressive in claiming expenses, your income may fall short of what you need to get your loan.
There was a time when lenders would accept whatever income you put on your application as accurate and true. These were called “stated income” loans; for obvious reasons, they no longer exist. There were also loan programs where the lender would accept a record of your bank deposits as documentation of income. These “bank statement” mortgage loan programs disregarded business expenses, so applicants could document more income to qualify for bigger mortgages. These, too, have gone the way of the dodo bird.
Now, mortgage lenders put all applications under a microscope before approving them. Getting a mortgage when you own your own business requires you to know just what the lender wants to see before you apply.
Here are 6 things you need to know about the process when you apply for a mortgage loan while self-employed:
If your most recent federal tax return shows that you have been self-employed for at least 12 months, you may only need to supply your most recent return. This could be important if your business has been growing, and the most recent tax return is significantly better than the previous year. Your lender will also prepare form 1084—the Cash Flow Analysis form. Self-employed borrowers can use this form to maximize net income for qualifying purposes.
So, what do I do when I want to buy a house? The lender looks at your NET income (the money left over after normal operating expenses, mileage, entertainment, depreciation, etc.) A clever accountant will get your business expenses as high as legally possible to minimize your tax liability. However, you aren’t legally required to claim every deduction, and every deduction is an expense that lowers your NET income.
Remember, your lender doesn’t care how much cash your business took in; it cares how much you had after the bills were paid. The goal is to show the maximum amount of NET income to qualify for your loan.
Limiting your tax deductions isn’t the only way to boost your NET income. Certain business expenses can be added back to your net profit. You may claim depreciation on business equipment and hardware. Depreciation is a tax-deductible accounting loss that shows the decreasing value of an asset as it gets older. This deduction gets added back to into your net profit.
You may have had certain one-time expenses for your business. They reduce your net profit for tax purposes, but if you can document that they won’t occur in the future, you’ll be able to add those nonrecurring expenses back into your net profit. Always be prepared to provide documentation that they were one-time expenses.
If you use any part of your home to conduct business, you can claim a home office deduction, you can add that amount back into your net profit, as well.
Remember, you are not required to claim every deduction allowable under IRS tax code. You may decide not to claim every deduction the IRS permits. For example, business miles are tax-deductible, which can add up to a large number—and a lower net profit for qualifying purposes.
Consider whether paying a bit more in taxes to qualify for your loan is a good trade-off, and perhaps claim less business mileage.
Are you making payments for your vehicle through your business account? If you have an automobile loan or lease in your own name, and you make regular payments from your business account, you may be able to exclude those monthly payments from your personal statement. Just be sure to remember, they need to show up on your business account.
If your tax returns show enough stable net income to qualify, the standard tax-return-based mortgage path is usually the first place to start. If heavy write-offs significantly reduce your qualifying income, your income varies widely from year to year, your business has grown recently faster than your filed returns reflect, or you are borrowing mainly as a real estate investor, it may make sense to ask about alternative documentation options instead. The goal is to identify the path that best matches how your income is actually documented before you apply.
| Bank Statement Loans | These loans let self-employed borrowers qualify using personal or business bank statements instead of traditional income documents. |
| 1099-Only Loans | Designed for independent contractors, these loans use 1099 forms and year-to-date earnings to verify income—no tax returns required. |
| Profit & Loss (P&L) Only Loans | Borrowers qualify using CPA-prepared profit and loss statements, ideal for business owners with complex or fluctuating income. |
| Asset-Based Loans | These mortgages use liquid assets like savings and investments to determine eligibility, bypassing employment or income verification. |
| DSCR Loans | Real estate investors qualify based on a property’s rental income and debt service coverage ratio, not personal income. |
| Non-QM Investor Loans | Flexible mortgages for investors that fall outside conventional guidelines, often using alternative documentation and property income to qualify. |
Now you, as the lone and brave entrepreneur, know how to apply for a mortgage loan and qualify just as easy as someone who works for The Man. Consider these tips to take advantage of low rates and the homes that are available. After all, just because you are self-employed doesn’t mean you have to worry about qualifying for refinances or purchases. You have a plan! We also offer other great resources to help guide your refinancing goals.
Sammamish Mortgage has been in business since 1992, and we would be delighted to make our expertise available to you. We are based in the Pacific Northwest and currently provide high-quality mortgage programs in the states of Washington, Oregon, Idaho, Colorado, and California. If you have questions about rates and mortgages to buy a home as a self-employed individual, contact us today! Or, visit our website to get an instant rate quote.
You’ll typically need tax returns, profit and loss statements, bank statements, and proof of business ownership or operation. The exact documentation can vary by lender and loan program.
Requirements vary, but if your most recent federal tax return shows that you have been self-employed for at least 12 months, a lender may only need that most recent return. Some lenders may still review additional history.
Yes, lenders still review credit as part of the approval process, along with income consistency, documentation, debts, and overall cash flow.
Yes, some options include non-QM loans, bank statement loans, and 1099-only loans, which use alternative documentation for borrowers with non-traditional income.
Not necessarily. Down payment requirements depend on the loan program, but self-employed borrowers are often reviewed more closely for income documentation and consistency.
Some programs use liquid assets such as savings and investments to help determine eligibility instead of traditional income verification.
Lenders usually review net income after business expenses and may add back certain eligible deductions such as depreciation or documented one-time expenses.
Yes, large write-offs can reduce net income, which may lower the amount you qualify to borrow.
Form 1084 is a cash flow analysis used by lenders to evaluate income from self-employment and determine qualifying income.
In some cases, yes. Lenders may allow a home office deduction to be added back when calculating qualifying income.
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