How To Apply For A Mortgage When You’re Self-Employed

When you’re applying for a mortgage, you need to provide your income information – including W-2s and paystubs.

But what if you’re self-employed?

Getting a mortgage when you’re self-employed is entirely possible, although you may be on the hook for more paperwork to prove your income. However, there are also factors in self-employment that may work against you, so it’s crucial that you are prepared to present yourself to lenders in the best light. These steps will help you feel confident when it comes time to apply for a mortgage if you are your own boss.

Gather All Applicable Paperwork

When you’re employed by someone else, lenders will typically request a year or two of your tax returns. When you’re self-employed, you’re going to need at least two years’ worth of tax returns to show income consistency. You’ll also want to show any debts and assets over these years, and you may need a profit-and-loss statement if you have a business.

Be Aware Of Deductions

For the self-employed, tax deductions are a massive benefit. However, lenders will see your income as it is after your deductions, meaning that those savings are actually working against you. Decide whether those tax-time deductions are worth enough to keep around, or consider dropping some to boost your income and qualify with a lender.

Keep Your Business And Personal Accounts Separate

Not mixing business and personal funds is always a good idea for self-employed individuals, but lenders will need to see your financial picture clearly. If you charge large work expenses to your personal credit card, your personal debt is much higher than it should be, which can work against you.

Boost Your Credit

Your credit score is going to help you get the best mortgage terms, but a high score will also help improve your application as a self-employed person. Check your reports – you get one free from each bureau every year – and make sure you aren’t being penalized for any errors. Pay off higher balances and don’t add additional credit while you’re shopping for a loan.