Self-Employed? Getting a Mortgage Does Not Have to Be Complicated
Self-employed borrowers often assume that getting approved for a mortgage will be much more difficult than it is for a salaried employee.
Sometimes it is more complicated—but being self-employed does not mean you cannot qualify for attractive mortgage financing.
The key is understanding how lenders evaluate self-employed income and knowing which loan program best fits your financial situation.
At Capital Funding Mortgage, we help self-employed borrowers throughout Pennsylvania and New Jersey evaluate conventional and alternative mortgage options.
I’m John Madden, owner of Capital Funding Mortgage, and I have been helping borrowers with mortgage financing for more than 25 years.
When you are self-employed, experience can matter because your income may not fit neatly into a standard underwriting formula.
A salaried employee may be able to document income with relatively straightforward items such as:
Self-employed borrowers may have more complicated financial profiles.
You may own a corporation, partnership, LLC, sole proprietorship, or professional practice.
You may receive income through:
Lenders generally need to determine whether your income is stable, recurring, and likely to continue.
That means the income shown on your tax return is not always treated the same way as gross business revenue.
This is one of the most important concepts for self-employed borrowers to understand.
A successful business may generate substantial cash flow while showing considerably less taxable income.
Business owners may legitimately deduct expenses such as:
These deductions can reduce taxable income.
Unfortunately, they may also reduce the amount of income a traditional mortgage lender uses when evaluating your application.
That does not necessarily mean you cannot qualify.
It may simply mean that we need to determine which mortgage program and income-documentation method best fits your situation.
Many self-employed borrowers qualify for conventional financing.
If your tax returns show sufficient qualifying income and your overall financial profile is strong, a conventional mortgage may be the best option.
The lender may review items such as:
The exact documentation needed depends upon how your business is structured and how long you have been self-employed.
Mortgage lenders generally do not simply look at your gross business revenue and use that number as income.
They evaluate the income available to you after considering business expenses and other adjustments.
Depending upon the circumstances, certain non-cash expenses or allowable adjustments may sometimes be considered when calculating qualifying income.
The calculation can become more complicated when a borrower:
This is one reason it can be helpful to have your income reviewed before you begin shopping for a home.
Lenders generally want to see an established history of self-employment.
However, mortgage guidelines can vary depending upon the borrower’s previous employment, experience in the same industry, income history, and the particular loan program.
If you have recently become self-employed, do not assume that you automatically have to wait a specific amount of time before applying.
We can review your situation and determine which programs may be available.
Documentation varies, but self-employed borrowers may be asked to provide some combination of:
The goal is not to collect unnecessary paperwork.
It is to determine what is required for the particular mortgage program being considered.
This is a common problem for business owners.
You may have excellent credit, significant assets, and a profitable business but still have difficulty qualifying under traditional mortgage guidelines because your taxable income is too low.
In that situation, alternative mortgage programs may be worth considering.
Depending upon your qualifications, these may include:
These programs are not appropriate for everyone, but they can be valuable alternatives when traditional income documentation does not accurately reflect a borrower’s financial strength.
A bank statement loan may allow qualifying income to be evaluated using deposits shown on personal or business bank statements rather than relying primarily on tax-return income.
This can be especially helpful for business owners who take substantial legitimate deductions.
Bank statement programs vary significantly between lenders.
Differences may include:
Capital Funding Mortgage can compare available programs from multiple wholesale lenders.
Independent contractors and other borrowers who receive 1099 income may also have mortgage options beyond traditional tax-return qualification.
Some borrowers can qualify conventionally.
Others may benefit from alternative documentation depending upon how their income is received and reported.
If you are a 1099 borrower, we can review the way your income is structured and determine which options may be available.
Higher-priced homes can present additional qualification challenges for self-employed borrowers.
Jumbo mortgage lenders may have different requirements regarding:
Because jumbo loan guidelines vary between lenders, comparing programs can be particularly valuable for self-employed borrowers purchasing higher-priced homes.
Business owners and real estate investors often have complicated tax returns.
If you are purchasing an investment property, you may have several financing options depending upon the transaction.
These can include:
For some investment properties, the property’s rental income may play a significant role in qualification.
This is an important question.
Business owners sometimes aggressively minimize taxable income and later discover that it affects their ability to qualify for a mortgage.
If you are planning to purchase or refinance a home in the near future, it may be helpful to speak with both your mortgage professional and tax advisor before making major financial decisions.
Capital Funding Mortgage does not provide tax advice, but we can explain how the income shown on your financial documents may affect mortgage qualification.
That allows you to make a more informed decision with your tax professional.
Self-employed borrowers should be especially careful about making significant changes during the mortgage process.
Examples may include:
If you are considering a major change while applying for a mortgage, speak with us first.
Self-employed mortgage lending is not one-size-fits-all.
One lender may calculate income differently from another.
Another lender may offer a program specifically designed for borrowers whose income cannot be easily documented under conventional rules.
As a mortgage broker, Capital Funding Mortgage works with multiple wholesale lenders.
That allows us to compare different underwriting approaches and mortgage programs rather than relying on a single lender.
For a self-employed borrower, that flexibility can be especially important.
One of the best things a self-employed borrower can do is have their income reviewed early.
Ideally, this happens before you become emotionally committed to a particular property.
We can review your financial situation and help determine:
Identifying potential issues early can make the mortgage process much smoother.
Capital Funding Mortgage assists self-employed borrowers throughout the areas we serve in Pennsylvania and New Jersey.
We work with business owners and independent professionals purchasing or refinancing homes in areas including:
Whether you own a small local business, professional practice, contracting company, real estate business, or another type of self-employed enterprise, we can help you evaluate your mortgage options.
If you are self-employed, do not wait until you have found a home to determine whether your income will qualify.
A conversation early in the process can help you understand your options before you make an offer.
We can evaluate:
Contact John Madden at Capital Funding Mortgage to discuss mortgage financing for self-employed borrowers in Pennsylvania and New Jersey.
With more than 25 years of mortgage experience and access to multiple wholesale lenders, our goal is to help you find a mortgage structure that fits the way you actually earn your income.
Capital Funding Mortgage
Experienced mortgage guidance for business owners and self-employed borrowers.
