8 Keys to Getting Approved for a Mortgage if You’re Self-Employed
Your office might be a built-in desk in the corner of a spare bedroom, a downtown co-working space — or the front seat of your pickup. The Bureau of Labor Statistics reports there are 15 million self-employed workers in America living the dream, being their own boss. Sure, it can be a struggle, but there is great satisfaction in seeing your very own business grow from a sketch on paper to profitability.
Until you try to get a home loan. Self-employed people have to work harder to score a mortgage. Here's how to crack the code on getting the credit you deserve.
Documentation is the difference
When you're self-employed, the loan process looks the same on the surface, but underneath? Completely different animal. You're going through the same steps - rate quotes, applications, signing a mountain of paperwork. But where employees hand over their neat little W-2s, you're dumping years of tax returns with all those schedules on the table.
And that's where things get dicey. As entrepreneurs, we write off everything we possibly can - home office, mileage, equipment, you name it. But those write-offs that save you thousands in taxes? They're absolutely murdering your income on paper. The bank doesn't care about your gross - they want that net number after deductions, and they need it high enough to hit their debt-to-income sweet spot between 36% and 43%.
You may pay more for your mortgage
Banks see self-employed folks as higher risk - it's just how the game is played. So you might end up paying more for your mortgage with a higher interest rate. That's the tactical disadvantage of being your own boss.
But think about this strategically - sometimes you take the higher rate now, build up that payment history, and refinance down the road when you've proven yourself. Good credit leads to better credit. That's just how this game works. You've got to be willing to accept those terms if you want in.
Improve your odds of being approved
Getting a mortgage when you're self-employed is like fighting a grizzly bear - you better come prepared with every advantage you can get. Here are eight moves that could flip the odds in your favor:
Register and license your business. Make it official. Legitimize yourself.
Pay yourself a W-2 wage rather than an owner's draw. Banks love that employee status, even if you're employing yourself.
Lower your debt load. Less debt means more breathing room in that debt-to-income ratio.
Reduce your tax deductions. I know it hurts to pay more taxes, but sometimes you gotta show more income.
Keep separate business and personal accounts. Clean books make lenders happy.
Maintain good records. Get yourself set up with QuickBooks or something similar to track everything and generate those profit and loss statements lenders want to see.
Consider making a larger down payment. Maybe tap into your retirement funds if you have to.
Look at local credit unions or smaller mortgage companies. These smaller operations might actually take the time to understand your business instead of just running numbers.
It's not impossible
Here's the bottom line - being self-employed puts you at a disadvantage from the jump. It's part of the price we pay for freedom, for being our own boss. But difficult doesn't mean impossible.
The reality is that self-employed people are getting approved for mortgages every single day. About one in four mortgages from some lenders go to self-employed borrowers. The system isn't designed for us, but with the right preparation, you can absolutely make it work. You just need to understand the game and come ready to play by their rules - at least until you get the keys to your new home.
Take Action Now
Ready to turn your homeownership dreams into reality? Start implementing these strategies today:
Begin organizing your financial documents and separating personal from business expenses immediately. Schedule a consultation with a mortgage broker who specializes in self-employed borrowers. Consider starting your preparation at least 6-12 months before applying to give yourself time to implement these tactics effectively.
Don't let your employment status stand between you and your dream home. Take control of your financial narrative, strengthen your application, and position yourself for success. Your business already proves you've got what it takes to overcome challenges – now apply that same determination to securing your mortgage.
