Articles and Advice

Buying a House When You're Self-Employed

Self-employed and buying a house? Ask yourself these questions.

Owning a home is a big part of the American dream.

When you're self-employed, the path to reaching that dream may be laden with obstacles, but it's still a reachable goal. Buying a house depends on your ability to obtain a mortgage and income is a big factor. To prove you have consistent and stable earnings, you'll have requirements to meet and tasks to work through. You can start by considering these questions.

How much home can I afford?

A mortgage company wants to know one thing: are you financially capable of paying your mortgage? You should know the answer to that question before you start the mortgage process. It depends on these and other factors.

The cost of the home you wish to purchase
Your best down payment
Your income
Your available savings
Retirement benefits and other income
Existing financial obligations

What must I do to prove I'm mortgage-worthy?

Your mortgage company will access your credit profile. They'll also want proof of your previous earnings. For self-employed persons, that usually means two years of tax records, but they may also want to see proof of your actual sales. In addition to past earnings, they may require evidence of ongoing consumer demand for your product or services and verification of your future earnings potential. Requests for proof usually require that you produce formal records.

Two years income tax records
Business profit and loss statements
Bank Statements
Customer credit card receipts
Cash sales invoices
Any 1099s issued to you
Documentation of business debts

Is my documentation organized and ready?

Generating the appropriate proof of income is easier when you have an employer who tracks and documents your salary history. When you're self-employed and buying a house, these tasks fall on your shoulders. You must know what information your mortgage company needs and understand what they'll accept as credible documentation. To prevent mortgage processing delays, you should organize your information and have it ready for review before you begin the mortgage underwriting process.

Who will decide if I'm mortgage-worthy?

Homebuyers once proved their credit-worthiness in a formal face-to-face setting. Now, you're more likely to deal with a mortgage representative, a digital device, and automated mortgage software like Desktop Underwriter or Loan Advisor. You may even be required to enter the information via an app, program, or website on your own digital device.

Automated programs take the financial guesswork out of human hands. When you provide the requested information the program produces a nearly instantaneous yes or no decision. It might also generate a referral to a traditional mortgage underwriter where you may still have an opportunity to prove your financial viability.

What if I've been self-employed for less than two years?

Some mortgage companies may accept a strong one-year self-employment history documented by tax and other records. This is more likely if you were previously employed in the same field as your business.

If you're concerned that your length of time in business or your self-employed earnings don't meet traditional mortgage standards for buying a house, you may have options. Each of the government-backed loan programs listed below has its own requirements, but they all offer benefits such as lower interest rates and down payments and less stringent credit and employment requirements.

Federal Housing Authority (FHA)
Fannie Mae
Freddie Mac
Veteran's Administration (VA)

Contact Your Real Estate Professional

When you're self-employed, buying a house can be a complicated process. It's important to work with an experienced professional. When you're ready to begin your search for a new home, your realtor can provide the knowledge, experience, and guidance you need.

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Buying a House When You're Self-Employed

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