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How to Qualify for a Home Loan if You’re Self-Employed

Your self-employed status isn’t a barrier to your dream home. If you follow the steps and tips, qualifying for a mortgage will be easy.

Contrary to popular thought, self-employed individuals can qualify for mortgages and purchase their dream homes. That’s right; you don’t need to work for a company or a recognized employer to land a mortgage. However, it’s worth noting that applying for a mortgage as a self-employed individual is slightly different from applying for one when a company employs you.

You’ll still need good credit and have to fill out a mortgage application just like employed people do. But you might be required to fill out more paperwork than your employed counterparts.

What Do Lenders Look for in Self-Employed Individuals?

Qualifying for a mortgage loan can be a little harder for self-employed individuals because of the characteristic risk and unpredictable cash flow typical of self-employed ventures. Here’s what mortgage lenders look for in self-employed individuals.

  • Cash flow stability
  • A strong future earning capability
  • A business with considerable financial muscle

If you or your business meets the above criteria, you’re well on your way to landing a mortgage for your first home purchase. With that out of the way, let’s look at the documentation you’ll need to provide.

What Documents Do You Need for Your Home Loan Application?

If you’re self-employed, you’ll first need to provide documents that verify your self-employment status. Some of these documents include:

  • Evidence that your business has proper insurance (if applicable)
  • Emails or letters from current clients
  • State business licenses
  • Proof of membership of a professional organization (optional)

Apart from your self-employment verification, you’ll also need solid proof of income. The following documents show proof of income:

  • Tax returns
  • Forms indicating profit and losses made
  • List of assets
  • Bank statements

Some forms that may come in handy while providing proof of income include form W2, form 1120S, or a schedule C form. Of course, all this depends on the type of business you’re running. Also, keep in mind that even if your business had a great run for the past year or so, lenders might still review income from previous years.

Tips for Getting Your Mortgage Application Approved

While your application is under scrutiny, here are a couple of tips to increase your chances of landing a mortgage.

  1. Watch your debt: Increasing your debt could jeopardize your chances of approval. Therefore, keep your debt at a bare minimum throughout the review process.
  2. Have your down payment in order: Most lenders require proof of your ability to pay the down payment and a few months of mortgage payments. Make sure you save enough to cover both to avoid delays.
  3. Be patient: Mortgage applications for self-employed folks can be frustrating, but be patient and don’t give in to your frustration — even if the lender asks for more documents or there are delays with your application review. Remember, patience pays.

Contact Better Rate Mortgage today

Your self-employed status isn’t a barrier to your dream home. If you follow the steps and tips, we’ve highlighted above, qualifying for a mortgage will be easy. If you’re looking for a reputable mortgage lender in Missouri, Sean Zalmanoff and the Better Rate Mortgage team are here for you. We have incredible mortgage offers and smooth pre-approval processes. Contact us today!

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