Being your own boss has never been more common. Freelancers, independent contractors, gig workers, consultants and small-business owners enjoy advantages that traditional employment may not offer—from greater flexibility and control over your schedule to the opportunity to build a business and increase your earning potential.
But when it’s time to buy a home, being self-employed can raise an important question:
Can I qualify for a mortgage without a traditional W-2 job?
The answer is yes.
Self-employed borrowers can qualify for many of the same mortgage programs available to traditional employees. The difference is often in how your income is documented and evaluated. And for borrowers whose tax returns don’t accurately reflect their available cash flow, alternative mortgage programs may provide additional options.
Here’s what self-employed homebuyers should know before applying.
Organize Your Income Documentation
One of the most important things you can do before applying for a mortgage is get your financial records organized.
Income for a business owner, freelancer or independent contractor may fluctuate throughout the year. Rather than focusing on a single paycheck, a lender may review your income history to determine whether your earnings are stable and likely to continue.
Depending on the mortgage program and your financial situation, documentation could include:
- Personal and business tax returns
- 1099 forms
- Personal or business bank statements
- Year-to-date profit and loss statements
- Business licenses or other evidence of self-employment
- Documentation of assets and reserves
- Additional documentation requested by the underwriter
Keeping accurate, up-to-date records can make the mortgage process considerably easier.
Understand How Business Write-Offs Can Affect Mortgage Qualification
Tax deductions are one of the benefits of running a business. However, they can also affect mortgage qualification.
Self-employed borrowers commonly deduct legitimate business expenses to reduce taxable income. For traditional mortgage underwriting, however, lower reported income can sometimes mean less qualifying income for a mortgage.
That doesn’t necessarily mean you should give up valuable tax deductions simply because you’re planning to buy a home. Instead, speak with your tax professional and a mortgage professional before making major financial decisions.
More importantly, borrowers who have substantial business write-offs may have mortgage options that evaluate income differently.
Explore Mortgage Options for Self-Employed Borrowers
There isn’t one specific “self-employed mortgage.” Depending on your income, credit, assets, property and other factors, you may qualify for several different types of financing.
Conventional Loans
Self-employed borrowers can qualify for Conventional Home Loans just like traditionally employed borrowers. The lender will typically evaluate documented income, credit, assets, debts and other factors when determining eligibility.
Conventional financing can also offer down-payment options well below 20% for qualified borrowers. Putting 20% down may eliminate private mortgage insurance (PMI), but 20% is not necessarily required to purchase a home with a conventional mortgage.
FHA Loans
An FHA Home Loan may also be available to qualified self-employed borrowers. FHA financing offers lower down-payment options and more flexible credit guidelines than some conventional financing, although borrowers still need to document sufficient qualifying income and meet applicable FHA requirements.
Bank Statement Loans
For some business owners, tax returns don’t tell the complete story.
A bank statement mortgage may allow an eligible self-employed borrower to demonstrate income using personal or business bank deposits rather than relying solely on traditional tax-return income calculations.
Jet Direct offers bank statement programs that can evaluate 12 to 24 months of bank statements, providing another potential path for borrowers with strong cash flow whose taxable income has been reduced by legitimate business deductions.
P&L and Other Non-QM Options
Self-employed borrowers may also have access to Non-QM mortgage programs, including options that use profit-and-loss statements or other alternative methods of documenting income.
These programs can be particularly useful for entrepreneurs, business owners and other borrowers whose finances don’t fit neatly within conventional mortgage guidelines.
The important thing is not to assume that being turned down for one type of mortgage means you can’t qualify for another.
Build and Protect Your Credit
Your credit history remains important whether you’re traditionally employed or self-employed.
Before applying for a mortgage, review your credit reports and make sure the information being reported is accurate. Paying bills on time, keeping revolving balances manageable and avoiding unnecessary new debt can help strengthen your overall financial profile.
You don’t necessarily need a 740 credit score to qualify for a mortgage. Different loan programs have different requirements, and factors such as your income, debts, down payment and overall credit profile can all influence the financing available to you.
If you’re unsure where you stand, speaking with a mortgage professional before you begin house hunting can help you understand your options.
Don’t Assume You Need 20% Down
One of the biggest mortgage myths is that everyone needs a 20% down payment.
They don’t.
While making a larger down payment can reduce the amount you need to finance—and putting at least 20% down on many conventional mortgages can eliminate PMI—qualified buyers may have significantly lower down-payment options.
That can be especially important for self-employed borrowers who would prefer to keep additional cash available for their businesses.
If this will be your first home, you can also explore Jet Direct’s First-Time Homebuyer resources to learn more about available financing options and the homebuying process.
Keep Business and Personal Finances Organized
Maintaining separate business and personal accounts is generally a good financial practice, and it can also make documenting your finances easier during the mortgage process.
If business and personal funds are routinely mixed together, determining the source of deposits and documenting available assets may become more complicated.
Clear records can help your loan officer and underwriting team better understand your financial picture and identify the mortgage programs that may fit your circumstances.
Get Pre-Approved Before You Start Shopping
Self-employed homebuyers can benefit significantly from starting the mortgage conversation early.
A pre-approval gives your lender an opportunity to review your income, assets, credit and documentation before you’ve found a home. It can also help uncover potential issues while there’s still time to address them.
Most importantly, an experienced mortgage professional can compare traditional and alternative financing options rather than trying to force a self-employed borrower into a program that doesn’t match their income structure.
Self-Employed? You May Have More Mortgage Options Than You Think
Being self-employed doesn’t have to stand between you and homeownership.
Whether you’re a freelancer, independent contractor, gig worker, entrepreneur or established business owner, Jet Direct Mortgage offers a variety of home financing options—including conventional and FHA mortgages as well as alternative solutions for borrowers with more complex income.
Your income may look different from a traditional employee’s. Your mortgage strategy can look different, too.
Contact Jet Direct Mortgage to discuss your financial situation, explore available mortgage programs and find out what you may qualify for before you begin your home search.
Loan programs, qualification requirements, down-payment requirements and documentation requirements vary. All loans are subject to credit approval, underwriting guidelines and applicable program requirements.
Experienced Chief Operating Officer with a 26 + year demonstrated history of working in the banking industry. Skilled in all aspects of the residential mortgage market . Strong business development professional with a Bachelor of Science (BS) focused in Business Administration and Management, from St. Joseph College. A direct endorsement underwriter and a licensed Mortgage Loan Originator.