How to Navigate Mortgages as a Self-Employed Buyer

20 April 2025

If you're self-employed and dreaming of homeownership, you might already know that securing a mortgage isn’t as straightforward as it is for traditional employees. Banks and lenders tend to view self-employed buyers as riskier candidates due to fluctuating incomes and tax deductions that may reduce your reported earnings.

But don’t worry! Getting a mortgage while self-employed is far from impossible—it just requires a bit of extra preparation and strategy. In this guide, we’ll walk you through the ins and outs of navigating mortgages as a self-employed buyer so you can secure the home loan you deserve.

Why Is Getting a Mortgage Harder for the Self-Employed?

Traditional employees have the advantage of W-2s that show consistent income, making it easy for lenders to assess their ability to repay a loan. However, if you're self-employed, your income can be unpredictable. You might have big earning months followed by slower ones, and lenders see that as a red flag.

Additionally, many self-employed individuals take tax deductions to lower their taxable income. While it’s great for reducing your tax bill, it can make it seem like you earn less money on paper—something lenders don’t love when evaluating your mortgage application.

That said, lenders don’t automatically reject self-employed applicants. Instead, they require more proof of income and financial stability to ensure you won't default on the loan.

Steps to Secure a Mortgage as a Self-Employed Buyer

1. Get Your Documents in Order

When applying for a mortgage as a self-employed borrower, documentation is everything. Lenders will want to see a clear picture of your financial health before approving your application. Here’s what you’ll likely need:

- Tax Returns (At Least Two Years): Lenders analyze your reported income over the past two years to determine consistency and stability.
- Profit and Loss Statements: These help show lenders how much your business earns and whether it's profitable.
- Bank Statements: Having strong cash reserves can work in your favor, demonstrating that you have enough funds to cover mortgage payments in case of income fluctuations.
- Client Contracts (If Available): If you have ongoing contracts, showing them to lenders can prove stable, future income.
- Business License or LLC Documentation: If you operate as a business entity, lenders may request proof of registration.

The more organized you are with these documents, the smoother your mortgage application process will be.

2. Improve Your Credit Score

A strong credit score can make or break your mortgage application. Lenders use your credit score to assess how responsible you are with debt and whether you're likely to default on a loan.

Here’s how to improve your credit score before applying:

- Pay Bills on Time: Late or missed payments can significantly lower your score.
- Lower Your Credit Utilization: If you're using a high percentage of your available credit, try paying down your balances.
- Avoid New Debt: Taking out new loans or credit cards before applying for a mortgage can hurt your chances of approval.
- Check Your Credit Report for Errors: Mistakes happen—if you spot errors, dispute them immediately.

Most lenders prefer borrowers with a credit score of at least 620, but a higher score (above 700) can help you secure better interest rates.

3. Save for a Larger Down Payment

Lenders like borrowers who have more "skin in the game." A higher down payment means you're borrowing less, which reduces the lender's risk.

While traditional employees might qualify for mortgages with as little as 3–5% down, self-employed buyers will have better luck with at least 10–20% down. Having a larger down payment can also:

- Reduce your monthly payment
- Lower your loan-to-value ratio (LTV), making lenders more comfortable
- Help you avoid private mortgage insurance (PMI)

If possible, start saving early to strengthen your mortgage application.

4. Reduce Your Debt-to-Income Ratio (DTI)

Your debt-to-income ratio (DTI) is another key factor lenders look at. It’s calculated by dividing your monthly debt payments by your gross monthly income. The lower your DTI, the better.

For self-employed borrowers, lenders typically prefer a DTI below 43%. To improve your DTI:

- Pay off existing debts (e.g., credit cards, car loans)
- Increase your income (if possible) before applying
- Avoid taking on new debts before getting your mortgage

A low DTI reassures lenders that you have enough income to cover your mortgage payments without financial strain.

5. Work with a Mortgage Broker

Navigating mortgages as a self-employed borrower can be tricky, which is why working with a mortgage broker can be a game-changer.

Mortgage brokers have access to multiple lenders and can help find the best mortgage options tailored to your financial situation. They understand the complexities of self-employed income and can guide you toward lenders who are more flexible with non-traditional borrowers.

Rather than shopping around on your own, a broker can do the heavy lifting, increasing your chances of mortgage approval.

6. Consider Non-Traditional Loan Options

If traditional mortgage lenders make it difficult to qualify, don’t lose hope. There are non-traditional loan options designed specifically for self-employed buyers:

- Bank Statement Loans: Instead of tax returns, lenders use your bank statements (typically 12–24 months' worth) to verify income.
- Stated Income Loans: These loans don’t require traditional income verification but often come with higher interest rates.
- Portfolio Loans: Offered by private lenders, these loans are more flexible but may have stricter terms.

While these alternatives may have higher interest rates, they can be a viable path to homeownership if traditional routes aren’t working.

7. Keep Business and Personal Finances Separate

If you haven't already, it’s time to separate your business and personal finances. Lenders like to see clear distinctions between personal and business income, and having a dedicated business bank account simplifies income verification.

Mixing personal and business finances can make it confusing to assess your earning potential, potentially complicating the mortgage approval process.

8. Delay Tax Deductions (If Possible)

While tax deductions help lower your taxable income, they can work against you when applying for a mortgage. Since lenders assess your net income (after deductions), excessive write-offs can make it seem like you earn less than you actually do.

If you’re planning to apply for a mortgage in the near future, consider limiting deductions to show a higher net income on your tax returns. Consult with a tax professional to find a balance between reducing taxes and maintaining an income level that meets lender requirements.

Final Thoughts

Getting a mortgage as a self-employed buyer isn’t always easy, but it’s entirely possible with the right approach. The key is preparation—having a strong credit score, keeping your documents organized, maintaining a solid income, and working with the right professionals.

While traditional lenders may scrutinize self-employed applicants more closely, there are plenty of loan options that cater to business owners and freelancers. Stay proactive, be patient, and before you know it, you’ll be holding the keys to your dream home!