How to Apply for a Mortgage When you are Self-Employed

Don’t let self-employment stop you from buying a home

 Close-up view of a mortgage application with a golden-tipped pen on the paper, across the purpose of loan section.

Applying for a home mortgage, especially if it’s the first time, is daunting for anyone. If you’re conventionally employed, you only need to submit tax returns, pay stubs, and a few other documents to start the application process. But it’s a different situation for those who are self-employed. It may be more challenging – but it is not impossible!

Here’s what to know about applying for a mortgage when you’re self-employed:

Factors Underwriters Consider
Conventional loan giant Fannie Mae considers any individual who has a 25 percent or greater ownership in business as “self-employed.” Underwriters use specific factors to analyze those self-employed applicants, too. If you keep these in mind as you prepare yourself for the mortgage application process, you’ll position yourself for success. Lenders look at the following:

  • Stability of the borrower’s income
  • Location and nature of the borrower’s business
  • Demand for the product or service offered by the business
  • Financial strength of the business
  • Ability of the business to continue generating adequate income cover future mortgage payments
Gather and Organize All Business Documentation
Lenders want proof that you have an established business that generates a stable income. That proof comes in the form of paperwork. Create a folder on your computer or on your real-life desk, label it “Mortgage Loan Docs,” and start saving PDFs or making copies of the following:

  • Two years of personal tax returns
  • Two years of business tax returns including schedules C, E, K-1, form 1120/1120S
  • Signed letter from your tax preparer showing the Preparer Tax Identification Number (PTIN)
  • Signed letter from your CPA stating that you are actively in business
  • Business license
  • Year-to-date profit and loss statement
  • Balance sheet
  • List of debts
  • List of assets
  • Letters from at least one company that you service, on their letterhead, listing the dates and types of service you provided
  • Proof of business insurance (bond, liability, worker’s comp, etc.)
  • Proof of membership in any professional organizations related to your line of work
  • DBA (Doing Business As), if applicable
Be Over Prepared
There are situations where a potential lender won’t ask everything in the list above, but don’t count on that. It’s best to be over prepared than underprepared! Conversely, if you don’t have all of the items listed above, don’t let that stop you from applying. A lender will work with you as much as they can to materialize your common goal of getting a loan.

Be Patient
Thankfully, technology has made the mortgage application process much smoother overall. When you apply, you may do it in-person, via a telephone interview, or online. The initial processor typically plugs the information you provide into an automated underwriting system. This system can spit out an approve/decline decision within minutes. Even if you don’t get approved, don’t despair. You can work with a real human underwriter to review why it was declined; you may qualify under manual underwriting guidelines. At that point, even if you get declined again, don’t despair! Try another lender. They may have a simple solution that will allow the loan to go through.
Louise Gallup-Roholt has been a corporate project manager, room designer, remodeling contractor, award-winning television writer/producer, chef and author. She now writes about all those subjects that intrigue her and more. 

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