Self-Employed Mortgages

Is It Hard to Get a Mortgage When You’re Self-Employed?

Even if you are self-employed, there are plenty of options available when it comes to getting a mortgage. It is true that many traditional lenders may put you through some additional steps, but there are a wide range of loans for self-employed professionals out there.

Why can it be hard to get a mortgage when you’re self-employed? Some of the main challenges that self-employed borrowers face in qualifying for a mortgage are as follows:

• Tax returns: Banks will typically qualify borrowers for a traditional mortgage based on the income stated on their W-2. However, self-employed professionals may not receive a W-2. Additionally, the income on a self-employed person’s tax returns may not reflect their true earnings, as those who are self-employed tend to write off more business expenses and take more deductions than the average person.
• Income stability: Lenders want to see stable and sufficient income in order to qualify a borrower for a mortgage. However, self-employed professionals often don’t see the same consistent income as W-2 workers. Their income may vary from month to month due to business performance or seasonality, and some banks see this as a red flag.
• Experience: It can be particularly hard to qualify for a mortgage if you haven’t been self-employed for very long. In most cases, lenders will require a borrower to be self-employed for at least two years in order to qualify for a self-employed home loan. This is because the lender wants to see that the borrower has a sustainable and healthy business that generates enough income to repay the loan.

While these factors can make it harder to qualify for a mortgage as a self-employed professional, securing a home loan is far from impossible. In the next section, we list some of the mortgage options available to those who are self-employed.

Self-Employed Mortgage Options

If you want to get a mortgage as a freelancer, a contractor, or a small business owner, there are several options that you may want to explore. They include:

Asset-based loans

While most mortgages will ask you to verify your income via tax returns, an asset-based loan allows you to qualify for a mortgage using your liquid assets. Some of the liquid assets you can use to qualify for an asset-based loan include:

• Checking and savings accounts
• Retirement accounts
• Investment portfolios
• Money market accounts
• Certificates of Deposit (CDs)

If you’re not sure whether you have assets that can qualify you for a mortgage, reach out to our team. We can help you determine which assets you can use as income when applying for this type of self-employed home loan. Asset-based loans are also known as asset utilization loans or asset depletion loans.

Bank statement loans

A bank statement loan allows you to qualify for a home loan using only your bank statements instead of tax returns. You will typically be asked to provide between 12 and 24 months’ worth of bank statements to prove that you have the ability to repay the loan.

In addition to standard bank statement mortgages, we offer several other bank statement loan options, including:

• Bank statement cash-out refinance loans
• Bank statement home equity loans
• Profit and loss (P&L) loans

Bank statement loans can be a great option for retirees, business owners, freelancers, and any other individual looking for a self-employed home loan.

Conventional loans

A traditional conventional mortgage loan is a great option for employed and self-employed borrowers who claim enough adjusted gross income on their tax returns in order to qualify. The underwriter will need to do a full analysis of all pages of your tax returns. Conventional loans are considered a full documentation loan.

DSCR loans

A debt service coverage ratio (DSCR) loan is a great option if you would like to qualify for a home loan without using your tax returns. This type of mortgage is generally reserved for real estate investors, as you can qualify for financing based on your DSCR, which indicates how much cash flow a rental property has compared to its debt obligations.

If you already own an investment property, we also offer DSCR home equity loans (HELOANs), which allow you to tap into your existing property’s equity without touching your first mortgage.

FHA loans

A government-backed FHA mortgage loan is a loan program for employed and self-employed borrowers who can fully document their adjusted gross income on their tax returns. These borrowers may also be first-time home buyers or homeowners with low income or credit looking for a downpayment as low as 3.5%.

Home equity loans/lines of credit

Home equity loans and lines are available for both employed and self-employed borrowers and can be a great option for homeowners looking to access cash without having to refinance their existing first mortgage. Self-employed borrowers can use a HELOAN or HELOC by fully documenting their income via their tax returns. If one is unable to document enough adjusted gross income then a bank statement HELOAN is always an option as well.

USDA loans

USDA loans can be an attractive option for self-employed borrowers who are looking to purchase or refinance a property in a designated rural area. USDA loans offer down payments as low as 0%, but you must show enough adjusted gross income on your tax return to qualify.

VA loans

A government-backed VA mortgage loan is a loan program for both employed and self-employed borrowers who can fully document their adjusted gross income on their tax returns. These borrowers must qualify for VA loan benefits under the Department of Veteran Affairs. VA loans are full documentation loans and offer a down payment as low as 0%.

In other words, more loan programs are available to you than just Non-QM loans if you can show enough adjusted gross income (AGI) on your tax returns.

Applying for a Self-Employed Mortgage: 5 Tips

If you are interested in applying for a mortgage as a self-employed individual, you need to put yourself in the best position possible to be approved. Some of the most important tips to keep in mind include:

1. Pay Down Your Existing Debt

When you apply for a mortgage, every potential lender is going to take a look at your existing debt. If you want to maximize your chances of being approved, you should try to pay down any existing debt that you have.

Some of the most common examples of debt include credit card debt, car loans, and even student loans. If you carry the debt with you into the application process, you may have a difficult time getting approved. Try to pay down as much of your existing debt as possible before you apply for a mortgage.

2. Increase Your Credit Score

Just like a traditional loan, your credit score is going to play a significant role in the application process. You need to make sure that your credit score is as high as possible before you apply for a self-employed loan.

Some of the ways you can increase your credit score include:

• Correct any mistakes on your credit report before you apply for a mortgage.
• Try to reduce your credit utilization ratio and increase the amount of credit available to you.
• Make sure you pay all of your bills on time.

If you can max out your credit score before you apply, you can dramatically increase your chances of being approved.

3. Offer to Make a Larger Down Payment

Remember that the lender will be assessing how much of a risk you are to them. If you show that you are willing to make a larger down payment, you can increase your chances of being approved because you will immediately reduce the risk you pose to the lender.

4. Prove You Have Cash Reserves

While your income is important, your assets are important as well. There are emergency expenses that may arise from time to time, and if you show that you have extra cash reserves, you can increase your chances of being approved. That way, even if your income dries up as a self-employed professional, you will still have plenty of cash reserves you can fall back on to continue to make mortgage payments.

5. Have Your Documentation Ready

Getting your documentation in order before applying can help the process go smoother. Some of the documentation that you may want to bring with you to the application process include:

• Bank statements
• Personal and business tax returns
• Business license or CPA letter
• A list of assets
• Profit-and-loss statements
• A list of any additional sources of income (Social Security payments, alimony, etc.)

Apply for a Self-Employed Mortgage Loan Today

At Griffin Funding, we have a significant amount of experience funding mortgage loans for self-employed professionals. We are experts when it comes to self-employed home loans and non-qualified mortgage options, providing you with a streamlined application process and best-in-class service.

We also offer tools to help you improve your financial wellbeing, prepare for homeownership, and analyze your financing options. Download the free Griffin Gold app today to access a personalized financial dashboard, smart budgeting tools, credit management features, and more.

If you would like to learn more about how we can help you obtain mortgage financing as a self-employed individual, reach out to schedule a consultation. Or, if you’re ready to get started, feel free to apply online today.