How to Qualify For a Self-Employed Mortgage Loan

When a self-employed person applies for a mortgage, loan officers often think of two words: high risk. There is a common misconception that self-employed borrowers have less dependable income than salaried employees. As a result, self-employed mortgage applicants often have to achieve a greater level of lender standards to receive a mortgage loan. However, it is possible.

Before looking for a mortgage, you should assess your company and personal finances. To assist the lender and yourself throughout the mortgage application process, keep note of whether you have submitted personal vs company income separately or jointly. Simply superficial, make sure your revenue sources are recorded.

Reduce Your Debt-To-Income Ratio.

Your debt-to-income ratio (DTI) is the proportion of your monthly income that goes toward paying your debts. The DTI is essential in the lender’s evaluation of your financial capacity to make timely mortgage payments.

Your debt-to-income ratio must generally be less than or equal to 43%. As a general guideline, keep your total monthly debt payments under 36% of your gross monthly income.

You may reduce your DTI by raising your income and paying down your debt. Mortgage underwriters generally consider income after costs.

Paying off your bills is the most successful technique. You might also consolidate your credit to a reduced interest rate, lowering your monthly payments to a manageable amount. If your debt-to-income ratio exceeds 50%, you should reconsider your application and pay off part of the credit first.

Determine If You Need a Self-Employed Mortgage.

You will be designated as a self-employed borrower if you own 25% or more of a single firm or operate as an independent contractor or service provider. A lender will also consider you self-employed if you work for a firm that pays you as a gig worker rather than an employee and issues you a 1099 form, somewhat of a W-2.

The lender, the sort of company you operate, and whether you have a co-borrower will influence how much scrutiny you face as a self-employed borrower. Because a standard job contract does not guarantee your income, a lender will want additional evidence of income to ensure you can still afford a monthly payment. A lender may think you’re more likely to skip a price if your wages fluctuate weekly. As a result, it may require additional evidence that your firm is solid and that you have sufficient cash flow to cover a lower-earning month


Most mortgage lenders need at least two years of consistent self-employment before you may qualify for a home loan. Lenders define “self-employed” as a borrower with a 25% or more ownership stake in a firm or who is not a W-2 employee.

However, exceptions to the two-year norm.

If you have a two-year track record in a related line of business, you can qualify with only one year of self-employment. You must show that your new job pays the same or more than your previous one.

Some lenders may even take one year of the relevant job plus one year of formal schooling or training as work history.

You are unlikely to qualify for a home loan if you have been self-employed for less than a year.