Self-Employed Means No Mortgage

by Tony Tiller

Myth #10 of 30

If you work for yourself, you've probably heard it: "Good luck getting a mortgage." A mortgage is the loan you use to buy a home. The idea is that lenders only want people with a steady paycheck and a W-2, the tax form an employer gives you each year. So if you're a contractor, a hairstylist, a rideshare driver or you run your own small business, you might think you're stuck renting.

You're not. Roughly 10 million Americans were self-employed in their own unincorporated businesses as of May 2025, according to the Bureau of Labor Statistics. Lenders make loans to self-employed people all the time. The process just looks a little different, and it takes more paperwork.

Can you get a mortgage if you're self-employed?

Yes, self-employed people can get a mortgage. You can use the same loan types as everyone else, like FHA, VA, USDA and conventional loans. The difference is how you prove your income. Instead of pay stubs and a W-2, lenders usually look at your tax returns.

How long do you need to be self-employed to get a mortgage?

Most lenders want to see two years of self-employment. That's the standard set by Fannie Mae, one of the big companies that buys home loans from lenders and sets many of the rules.

There are some exceptions:

About one year can work if your most recent tax return shows a full 12 months of income from your business and you earned the same or more doing similar work before. Say you were a W-2 electrician for years and then started your own electrical business. That history counts.
One year of tax returns can be enough if your business has been around for at least five years and you've owned at least 25% of it that whole time.

If you just went out on your own a few months ago, you'll probably need to wait a little longer. But that's a timeline, not a "no."

What income do lenders use if you're self-employed?

Lenders use your income after business expenses, not what you bring in. That's the part that trips people up. If you're a sole owner, your business income and expenses go on a part of your tax return called Schedule C. The number at the bottom, your net profit, is what lenders mostly look at.

Here's why that matters. Say your business brought in $90,000 last year, but you wrote off $40,000 in expenses. A write-off is a business cost you subtract to lower your taxes. To a lender, you made about $50,000, not $90,000.

Lenders also usually average your last two years. If this year is lower than last year, they may use the lower number or ask why. Income that keeps dropping is a red flag. Some expenses, like depreciation, are "on paper" only. Depreciation is a tax write-off for the wear and tear on things you own for your business, like a truck or equipment. Lenders can often add that back to your income.

Should you take fewer write-offs if you want to buy a house?

It's worth talking about, but only with a tax professional. Fewer write-offs means more income on paper, which can help you qualify for more house. It also means paying more in taxes. For some people the trade is worth it for a year or two. For others it isn't. The key is planning ahead, before you file, not after.

Sit down with your accountant and a lender at the same time if you can. Bring up your plans to buy before tax season so you're not surprised.

What is a bank statement loan?

A bank statement loan is a mortgage that uses your bank deposits to prove your income instead of your tax returns. The lender usually looks at 12 to 24 months of personal or business bank statements, takes your average deposits and subtracts a set amount for expenses.

It can help people whose tax returns don't show what they really make. But there are trade-offs:

These are non-QM loans, which means they don't follow the standard rules most mortgages follow.
They often need at least 10% down, and many lenders want a 620 credit score or higher.
They usually cost more, with higher interest rates than a regular loan.

For many buyers, a regular loan using tax returns is still the cheaper path. A bank statement loan is a backup plan, not the first stop.

What paperwork should self-employed buyers get ready?

Gather these before you talk to a lender:

Your last two years of personal tax returns, with every page and schedule
Your last two years of business tax returns, if you have a partnership, S corp or corporation
A year-to-date profit and loss statement, which shows what your business has made and spent so far this year
Two or more months of bank statements, personal and business
Proof your business exists, like a business license or a letter from your accountant

Being organized makes a big difference. Around St. Charles County and the St. Louis area, plenty of people work for themselves, from trades and home services to salons and small shops. The ones who have their paperwork ready usually have a much smoother path.

And if you're wondering how big your income needs to be, check out Myth #2. Your credit matters too, and Myth #7 covers what score you really need.