How to Qualify for a Mortgage When You’re Self-Employed

Want to buy a house, but think you can't because you're self employed? Think again! Here's how to qualify for a mortgage as a self-employed person.

We’ve been working towards buying a new home, for the past couple of years. We bought our first home before having kids and starting our business and it has been busting at the seams for several years. I’ve done considerable research about how to qualify for a mortgage when you’re self-employed and, honestly, I was a little concerned.

It’s not that we’re not on top of our money, because we definitely are, but the stigma attached towards those who work for themselves is real. As such, the requirements for getting a mortgage when self-employed can be a bit much.

This is not to say you can’t get a mortgage when you work for yourself. Just that it will potentially be a challenge. Thankfully, we had a relatively easy experience in getting our mortgage. But, we prepared as much as we could prior to put our best foot forward. If you’re self-employed and want to qualify for a mortgage, here’s how to do it.

Income Standards


Income is likely the biggest thing if you want to buy a house when self-employed. I can attest to the fact that income can fluctuate greatly when you work for yourself. We have killer months followed by “just enough” months. Thus, budgeting is key.

Ultimately, the lender wants to see something they can “count” on. They will likely ask for the following:

  • Personal income tax returns for the past two years
  • Business tax returns for the past two years if you operate as a corporation or partnership
  • Something official (CPA, business license, etc.) that shows you’ve been in business for at least two years

If you don’t have any of the above it’s going to be a challenge to get a mortgage. I will say that it also depends on the lender and what they want. Assuming you’re able to provide the above information, they will do the following:

  • Average your income for those two years. They will typically go with the average, not your high income number
  • They look for an upward trajectory. If you don’t have an upward progression in income you may face a challenge

I’ll spare you the extended detail, but the lender is looking for a certain level of health of your business. They want to make sure it’s moving the way they think it should. And, really, we should want our businesses to grow year over year – right? 🙂

You also need to keep in mind that they look at your net business income, not gross. So, if you’ve been overly deduction happy it can hurt when you try to qualify for a mortgage. Additionally, if you have W-2 income that is gold in the eyes of the lender so make sure to notify them if you do.

What Assets You Bring to the Table


One of the biggest financial mistakes I ever made was putting nothing down on our former house. That was not something we were willing to do this time and we wouldn’t have qualified for a mortgage if we didn’t have money saved up for a down payment.

We put down close to a 30 percent down payment on our new house. We did that for a few reasons: to not have to pay for PMI and because we knew it would make us look better in the eyes of the lender. If you’re not able to hit at least the 20 percent mark, I suggest you wait a little longer before applying for a mortgage.

The lender also looks at what you have beyond the down payment. I’m not talking what you have invested for retirement. They want to see a certain level of cash reserves. Since we all know income can fluctuate, they want to make sure you can handle mortgage payments if you have a bad month or two.

I was never given a hard and fast number, but have found that six months worth of cash reserves is a good target to shoot for. We were easily at that mark, with funds sitting in our Discover Bank account so I felt good enough with what we had.

Your Credit


This is where I was concerned. Not that our credit is bad (we both have scores around 820) but we like to churn credit cards for free travel. We both had numerous hits on our credit report and I was concerned that reality would impact our lender’s decision.

Knowing we were going to apply for a mortgage, we stopped applying for cards roughly 9-12 months before but that’s not a set in stone number. My advice is to be smart about it and curtail card applications if you know you’ll be trying to get a mortgage.

That being said, a higher credit score can help mitigate your income risk – to a certain extent. If you have a score of 720+ you should be able to qualify for the best rates possible.



If you want to get a mortgage when you’re self-employed, debt is going to play a big factor in the lender’s decision. The only debt we had was our mortgage so we were ok here though many may not be in that position. If you have a business loan you may think you’ll be fine. Unfortunately, they will count that against you in their calculations.

The lender is really going to determine what your Debt-to-Income (DTI) Ratio is when making the mortgage decision. In short, DTI takes your mortgage and adds in any non-housing debts, then divides it by your average monthly income.  Let’s look at an example of this below:

Mortgage payment = $1,000 per month

Car payment = $400 per month

Student loan payment = $400 per month

Other consumer debt = $200 per month

Total monthly debt/payments = $2,000

Total monthly household income = $5,000

You will have a DTI of 40 percent.

This is an important number to know, outside of trying to qualify for a mortgage. The highest DTI you can have and still qualify for a mortgage is 43 percent though am sure some lenders may have issues with giving out a mortgage to a self-employed individual with that high of a DTI. Our DTI is sub 10 percent so we were good at this level.

Do Your Work Before Applying for A Mortgage


If there’s one thing I can take away from trying to get a mortgage while self-employed is the importance of doing your due diligence prior. Many lenders won’t even look at you if you don’t have two years of returns. Keep in mind they may also want to see an upward progression in income levels as well.

The other thing to seriously consider is the lender you choose. We worked with our last lender – largely because she was no longer with Wells Fargo. Wells Fargo, like other large banks, are more reluctant to hand out mortgages to entrepreneurs.

Her new bank is a local bank that has been in Nebraska for over 100 years. Thanks to their reach in the local community, they have access to federal funds that other larger banks don’t or won’t give out. In effect, this allows them to loan their money to us. This more personal approach allows them to learn about their mortgage candidates and give us a chance because they see we’re worth the risk.

As an aside, I believe this issue of getting a mortgage while self-employed is going to become more of an issue in coming years. Pew Social Trends reported in 2015 that 3 out of 10 workers are self-employed or work for those who are self-employed.

This number will only grow as we move toward a freelance economy, in my opinion. There is still a pre-conceived notion that a “real” job where you work in an office 9-5 is more secure than working for yourself. We’re surrounded by risk and I think we’ve all learned one thing over the past decade – many, though not all, are at the whim of their employers. Hopefully, in time, big banks will get the message and work a little more with self-employed individuals.

Want to buy a house, but think you can't because you're self employed? Think again! Here's how to qualify for a mortgage as a self-employed person.

Have you tried to get a mortgage when self-employed? What challenges did you face? Why do you think we have the misconception that “real” jobs are always more secure than working for yourself?

If you enjoyed this post, please consider subscribing to the RSS feed.
The following two tabs change content below.
I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. I'm also a freelance writer, and regularly contribute to GoBankingRates, Investopedia, Lending Tree and more. If you're wanting to learn how to monetize your blog, check out my blog coaching services to see how I can help you take your site to the next level.


  • It hasn’t even crossed my mind that qualifying for a mortgage when self-employed may be more difficult or require more paper work. Thanks for the informational post!

  • I find that self employed people have the hardest time qualifying for mortgages! These tips are really good, so hopefully they will help!!

  • They wouldn’t count my income when we bought this house in 2014. This is mainly because I didn’t quite have two years of self-employment income yet. Fortunately, we borrowed very little, had a large down payment, and Greg’s income was enough to qualify.

  • Great info here, John. As a former mortgage sales assistant, I can tell you that your info is spot on. The biggest problem we saw when dealing with self-employed persons was the deduction-happy people who deducted 90% of their income but wanted us to count some or all of that as net income for qualifying, and it just doesn’t work that way. For that reason it’s important for self-employeds to expect to qualify on their net income and either adjust their purchase price accordingly or stop taking so much deductions for a couple of years prior to buying.

    • John Schmoll says:

      Thanks Laurie! Yea, I was somewhat, probably overly, concerned about that. Thankfully we’ve got a good CPA who helped us plan to make sure weren’t going overboard.

  • Congrats on the new home John!!! I saw the pictures on Facebook and love that you are sharing your story here. I have a friend who was self-employed for three years and couldn’t get her mortgage re-financed to save her life because of it. I think it’s because she was working with a partner and the business was not thriving over that period of time so she kept getting rejected. As you shared, it’s not impossible, but you do have to meet some other standards that others don’t. Like any other large financial transaction, the more preparation you do ahead of time, the easier it will be to get through it. Congrats again!

    • John Schmoll says:

      Thanks Shannon! Sorry to hear about the hassle your friend had. We were told of very similar situations here in Omaha and advised to avoid specific banks as a result. It’s crazy what a personal relationship can do in situations like this.

  • Michelle says:

    Love this post! We don’t plan on buying another home for at least a few years, but I’ve been wondering how being self-employed would impact the home buying process.

  • Great advice, John. I think this is advice that most self-employed people are looking for but it doesn’t seem to come up often. DTI is killer for millennials with student loan debt…nothing is more crushing than realizing just how high that percentage can become if you are buried in $50-$100k of student loans.

    • John Schmoll says:

      You’re exactly right – that DTI can be a real killer, especially for those with crazy student loan amounts they’re trying to pay off. I know it was a challenge for us to try and find good info on what we needed to do/expect with our mortgage process so hopefully this’ll help those in a similar situation.

  • Larry Green says:

    I had no idea that it would be more complicated to apply for a mortgage while being self-employed. Considering I plan on shifting more of my income to this area of the coming years, this post is getting bookmarked. Thanks for the information!

    • John Schmoll says:

      Yep, it can definitely be more difficult. They’ve supposedly tightened things to actually get a mortgage, though I still doubt that to a certain extent, and even more so for entrepreneurs.

Leave a Reply

Your email address will not be published. Required fields are marked *