Getting A Self-Employed Mortgage Through A Private Lender (2024)

FAQs

Getting A Self-Employed Mortgage Through A Private Lender? ›

Lenders will assess the income, credit scores, and financial stability of both applicants. The self-employed individual will need to provide additional documentation, such as tax returns, profit and loss statements, and bank statements, to prove their income.

Lenders are likely to request documentation, including: Personal tax returns. Your two most recent tax returns help demonstrate steady self-employment earnings. However, some lenders may be satisfied with just last year's tax return if you've been self-employed for at least a year.

Self-Employed Mortgage Options

FHA loans are designed for low-to-moderate-income borrowers. They require a lower minimum down payment—as low as 3.5%—and lower credit scores than many conventional loans.

Lenders want to see that the amount you earn from self-employment is steady or (ideally) increasing over time. For homebuyers with a traditional job, paystubs and W-2s serve as proof of regular income. But for self-employed individuals, income records could include: Two years of personal tax returns.

It's just that you may have to jump through more hoops to provide that proof. “Since self-employed people have non-traditional income structures, they may be required to show additional income documents when applying for the mortgage,” says Alan Rosenbaum, founder and CEO of GuardHill Financial Corp.

Proof of Income for Self-Employed:

Income tax returns – If you are self-employed or work as an independent contractor, your income tax return probably includes a Schedule C. Depending on what benefits or loans you are applying for, you may be able to use that information to verify your business income.

You do not need tax returns or tax transcripts to qualify. Lenders can use 12 or 24-month bank statements. Businesses can show 12-24 months of P&L statements. You can get a no-income verification mortgage with as little as 10% down.

Mortgage lenders typically use net income when assessing self-employed borrowers for home loans. Net income is the amount earned after deducting business expenses, taxes, and other deductions from gross income.

Self-employed borrowers typically provide more paperwork than conventional employees, who often only need to produce a few years of W-2s, personal tax returns and recent pay stubs. However, as long as you're prepared for it – and your personal finances are in order – you can become a self-employed mortgage borrower.

Getting an FHA loan while self-employed is possible. While there are additional standards to pass compared to what the average employee faces, FHA loans are available to business owners as well. This guide can help you prepare for your FHA loan application as a self-employed person.

What are the 4 C's of loans? ›

Standards may differ from lender to lender, but there are four core components — the four C's — that lenders will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.

You'll need to submit documents such as W-2s, pay stubs and bank statements for verification. If you're self-employed, you may need to provide more documents like profit and loss statements.

Mortgage lenders usually verify income and employment by contacting a borrower's employer directly and reviewing recent employment and income documentation. These documents can include an employment verification letter, recent pay stubs, W-2s, or anything else to prove an employment history and confirm income.

Yes, 1099 earners can use 1099 earning statements or bank statements to qualify for a loan. This loan option helps those who cannot verify income based on tax returns. Typically, one to two years of the most recent statements are required and the borrower must be employed with a single employer for two years.

A few easily overlooked sources of income include alimony, child support, disability income, Department of Veterans Affairs (VA) benefits, retirement benefits, side hustles, and bonuses. If your household receives any of these types of income, you may be able to include it on your application.

The payer is responsible for filling this out and sending it to the IRS, as well as a copy for you to use as reference when filling out your own tax return. So if you don't have your tax return on hand, you can use 1099 forms to prove your income.

Personal and business tax returns and bank statements. Your business' profit and loss statements, in addition to a balance sheet from the most recent business period. Proof of any additional income such as investment dividends or rental income.

Proof of one- or two-years of 1099 earnings from bank statements, pay stubs or year-to-date earnings statements. Two or more years of self-employment with the same client. Maximum loan-to-value (LTV) of 90 percent if your credit score is at least 700 (or 80 percent if it's between 640 and 699)

I [YOUR NAME], confirm that I have been self-employed for [NUMBER] [WEEK/MONTH/YEAR], as a [YOUR DESIGNATION] under the business name of [YOUR COMPANY NAME]. The nature of my business is as follows: [TYPE OF BUSINESS]. I conduct my business in [COUNTRY/STATE/PROVIENCE].

I confirm that I have been self-employed since (date) and operating under the business name of (business name or personal name). This business is a (sole proprietorship or partnership), and I own XX% of it. My gross income for the year of (year) was (dollar figure of income).