Mortgage qualification years ago required minimal paperwork. Any buyer with an average credit score and a social security number could qualify for financing without income documentation. But things changed after the mortgage meltdown and housing crash that started in 2008.

Now lenders are a bit more cautious about approving home buyers. Instead of putting a stamp of approval on every mortgage application, lenders want to see that buyers have the ability to meet the payments each month. When mortgage reform was passed in 2010, lenders started requiring that borrowers provide full documentation for both assets and income.


These changes in the mortgage industry made it harder for self-employed buyers to qualify for lending. W2 earners qualify for mortgages by showing the gross earned income on the tax documents. On the other hand, self-employed borrowers need to qualify by showing the net income on the tax returns.

The problem is that most self-employed people maximize the write-offs and itemized deductions, helping to minimize the tax burden by showing a low net income on the paperwork. This strategy is beneficial to save money on taxes, but self-employed buyers find it hard to qualify for a home mortgage now.


Just because you are self-employed, doesn’t mean that you won’t qualify for a loan. Instead, you need to be sure that you are working with a lender that uses creative approval options. For example, some lenders use approval programs that depend on bank statements instead of tax returns. A business owner can show 12 – 24 months of bank statements to prove qualifying income for the mortgage approval process. The lender calculates the qualifying income based on the average monthly deposits that move through the account.

This calculation is done by totaling the deposits into the account based on the information on the bank statements. As a general rule of thumb, 50% of the deposits into a business account will be calculated to determine the monthly income.

Other mortgage options might also be available depending on the circumstances: FHA loans, VA loans, USDA loans and more.


In addition to the bank statement income verification, a few other requirements are essential for mortgage approval. Self-employed buyers need to provide:

  • Proof of at least 2 years of self-employment (can be verified through a letter from your accountant)
  • A business listing
  • Your business website URL
  • Good credit score
  • Down payment
  • Asset documentation

Additionally, any co-borrowers who earn W2 wages will need to provide the income documentation as well.

There are pros and cons to creative lending for self-employed buyers. You shouldn’t overlook your options if you are ready to buy a home. The right real estate agent and lender will help you identify the solutions to meet the needs of your family.

What are your questions about the home buying process? If you would like more information, reach out to the Walker+Hailey Team at Realty ONE Group Music City, (888) 950-LIST or

Todd Walker

Gian Walker

Lehman Hailey