Self Employed Mortgages: What to Know & How to Get One

Published on November 11, 2017

– 7 min read

Working for yourself has its perks, but it can also pose challenges when you’re ready to buy a home. As a self employed mortgage applicant, the process and paperwork differ from the requirements for a W-2 employee.

Can you get a mortgage if you’re self employed? If you meet a lender’s eligibility requirements – absolutely. Knowing a few tips upfront can also help make the process smooth and successful. We tapped five financial bloggers on how to get a mortgage when you’re self employed. They share their best advice — including what they’ve learned from personal experience.

Panel of Experts:
Philip Taylor, PT Money
Laurie, Frugal Farmer
John, Frugal Rules
Jimmy, RealEstate Finance HQ
Kate, CentsationalGirl

Self Employed Mortgage Tip #1: Get your ducks in a row

“As a self employed individual, you should be prepared for the process to take longer and to provide more information to the lender’s underwriter than is normally expected.” Philip Taylor, PT Money

“You need to be prepared to give them a lot of paperwork. They’ll want personal and business tax returns, business incorporation paperwork and more – for at least the past two years. They’re also looking to make sure your income has gone up the past two years – at least. Thankfully ours was so this wasn’t an issue. However, if yours hasn’t be prepared to answer some additional questions.” John, Frugal Rules

“As a former mortgage lender and currently self employed person, my best advice is to keep precise records of your income and expenses. The more organized you are, and the more quickly you can back up your income claims with facts, the easier the mortgage process will be.” Laurie, Frugal Farmer

Tip #2: Choose your mortgage provider wisely

“Getting a mortgage while self employed is easier than you think. The absolute key is to deal with a mortgage company that is used to self employed individuals.” Jimmy, RealEstate Finance HQ

“Do your best to form a relationship with a lender or banker . We had a relationship with the lender of our first mortgage. She now manages a small local bank and had much more sway over things. She knew our situation, that we were good for the mortgage and that our finances were good, so it was much easier for her to push through our mortgage. She had formerly been with a large, well-known bank, and she said it would’ve been much more difficult to do in her former role.” John, Frugal Rules

Tip #3: Think like a lender

“If you want to analyze your business and how a mortgage underwriter will look at your application, look at your Schedule C of your personal income tax returns. If your business files separately, be sure to look at the K-1 for cash contributions and cash distributions.” Jimmy, Real Estate Finance HQ

“Lenders will qualify you by looking at your net income, not gross income, so keep that in mind when preparing your tax returns. In anticipation, you may not want to use all those write-offs so that your net income is higher. But always consult with your tax specialist for specifics on this issue.” Kate, CentsationalGirl

“Lenders look for stable and/or increasing income from self employeds. If you have a substantial drop in income they’ll want to know why.” Laurie, Frugal Farmer

Tip #4: Show them the money

“Having a large down payment will help. Lenders want to see that you are being responsible with the income you earn.” Laurie, Frugal Farmer

“Build up your cash reserves. You want this in getting a mortgage in the first place, but a sizable cash reserve will only help you secure a mortgage when self employed. I’d say it even pays to put off applying for a mortgage for a few months to build it up even more. This should also include a healthy down payment. I’d say to aim for the 20% mark, or more. We put down nearly 30% on our current house.” John, Frugal Rules

“Coming to the table with a big down payment and evidence of consistent success with your business can definitely help your situation and improve your chances of getting funding. I made the mistake of paying myself a low salary from my business and the underwriters didn’t want to lend to me at first based on my check stub and W-2. After some phone calls explaining my situation and showing them all my business assets, they got more comfortable.” Philip Taylor, PT Money

Tip #5: Pay down debt

“Have little to no debt. It’s always important to have little debt when applying for a mortgage but even more important when self employed. They know your income will fluctuate and if you have consumer debt it’s going to give them reason to turn you down. If you can kill all your debt prior to applying for a mortgage, do it as it’ll only help you.” John, Frugal Rules

Bonus tip from Clara Lending:

With a self employed mortgage application, try to keep your business assets and expenses separate from your personal assets and expenses. Commingling funds can make it harder for a lender to determine risk and your ability to repay the mortgage. For example, if you have debts that are specific to the business, make sure they are paid directly from a business account and you can document at least 12 months. Otherwise, it’s very likely that debt will count towards your monthly obligations and reduce the amount you can qualify for on a mortgage loan.

If you have any questions about self employed mortgages, chat with one of our licensed Loan Specialists or get your personalized rate quote in 3 minutes.

Steven Fung
Steven Fung is a licensed Loan Specialist at Clara with over 17 years of experience. When he doesn’t have his mortgage hat on, he enjoys repairing old cars and working on home improvement projects.
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