Mortgage Options for Self-Employed Borrowers
Self-employed? Your tax returns may not reflect your true cash flow. Explore bank statement loans, asset-based programs, and other mortgage options designed for borrowers with nontraditional income.
Owning your own business shouldn't mean giving up on your dream of owning a home.
If you're self-employed, a business owner, an independent contractor or someone with multiple sources of income, qualifying for a mortgage can sometimes feel more complicated than it should.
You may have excellent credit, significant savings and a successful business, but your tax returns don't always reflect your actual cash flow.
The good news? There are mortgage programs designed for borrowers whose financial situations don't fit traditional lending guidelines.
Why Can Traditional Mortgage Qualification Be Challenging?
Traditional mortgage programs typically rely on documented qualifying income.
For self-employed borrowers, lenders generally review tax returns and applicable business expenses to determine eligible income.
If your business has substantial tax deductions, the income used to qualify for a mortgage may be lower than the amount of money your business generates.
That's where alternative mortgage programs may be worth exploring.
1. Bank Statement Loans
Bank statement programs may allow qualifying borrowers to use personal or business bank deposits rather than traditional tax-return income calculations.
Depending on the program, lenders may review 12 to 24 months of bank statements to determine qualifying income.
These loans can be an option for established business owners, freelancers, independent contractors and entrepreneurs with consistent deposits.
Lenders still evaluate credit, assets, liabilities and the sustainability of the borrower's income.
2. Asset-Based Mortgage Programs
Do you have significant savings or investments but limited traditional income?
Certain mortgage programs allow eligible borrowers to qualify using qualifying liquid assets rather than relying exclusively on employment income.
Depending on the program, qualifying assets may include certain bank accounts, investment portfolios and retirement funds.
These programs can be particularly relevant for eligible retirees, investors and borrowers with substantial accumulated assets.
3. Profit and Loss Statement Programs
Some alternative mortgage lenders offer programs that consider a business's profit and loss statement when evaluating qualifying income.
Documentation requirements vary and may include statements prepared by an independent tax professional, supporting bank statements or other financial records.
4. Traditional Loans May Still Be an Option
Before assuming you need an alternative loan, it's worth reviewing your qualifications for conventional or government-backed financing.
Certain eligible business expenses may be added back when calculating qualifying income, and lenders may be able to consider multiple income sources.
A thorough review of your financial situation can help identify the programs available to you.
What Should You Prepare Before Applying?
Self-employed mortgage preparation checklist
- Recent personal and business bank statements
- Available personal and business tax returns
- Year-to-date profit and loss statement, if applicable
- Documentation of business ownership and operating history
- Recent asset and investment account statements
- Information about existing debts and financial obligations
Specific documentation requirements depend on the lender and loan program.
For Real Estate Agents
Have a client who owns a business and believes they can't qualify because of their tax returns?
Encourage them to explore their financing options before putting their home search on hold.
Understanding alternative income documentation programs can help you assist entrepreneurs, independent contractors and other buyers with nontraditional income.
Let's Find a Financing Solution That Fits
Your financial situation is unique, and your mortgage options should reflect that.
With over 30 years of mortgage industry experience, I understand that not every borrower fits into a traditional lending box.
Whether you're self-employed, own multiple businesses or have complex income, let's review your scenario and explore available financing options.
Realtors: Have a client with complicated income? Let's discuss their financing options before they give up on purchasing a home.
Written by CJ Rhodes