Most mortgage lenders require at least two years of stable self-employment before they can qualify for a home loan. Lenders define a “self-employed person” as a borrower who has an ownership interest of 25% or more in a company, or someone who is not a W-2 employee. Yes, you can get a mortgage if you are self-employed. In general, you'll need to prove two years of income history from your self-employment with tax returns.
Lenders define a self-employed borrower as anyone who receives more than 25 percent of their income in the form of a non-wage payment. This definition incorporates borrowers who work on commission or earn bonuses along with a regular salary. Some lenders may worry that they won't earn a stable enough income to make their monthly mortgage payments, and others may simply not want to deal with the additional documentation that may involve granting a mortgage to a self-employed person. Whether you're self-employed or an employed borrower, having the time and space you need to prepare to apply for a mortgage will make the process faster, easier and much less stressful.
You'll need to provide certain documentation to verify your work income and show the lender that you're eligible for a mortgage. The fewer monthly debt payments you have when you start the mortgage process for the self-employed, the easier it will be for you to make your mortgage payments. You can also consider working with a mortgage broker, whose job is to learn the ins and outs of each lender's policies regarding loans to self-employed workers and whose relationships should help you move forward with your mortgage application. While Rocket Mortgage's down payment requirements don't change as a result of self-employment, some mortgage lenders may try to mitigate your risks by having you make a higher down payment, resulting in a lower loan-to-value (LTV) ratio.
Obtaining a joint mortgage with a co-borrower who is employed with Form W-2, such as a partner, spouse, or trusted friend who will share ownership of your home, is another way to improve your prospects of getting approved for a mortgage if you are self-employed. Self-employed mortgage borrowers can apply for the same loans “traditionally employed borrowers can do it.” Keep in mind that FHA loans come with other significant costs, including a large initial mortgage insurance premium, so keep it as an alternative option if you can't get approval for a conventional self-employed mortgage. Because of this, self-employed mortgage applicants generally have to meet a higher threshold of lender requirements to obtain a home loan. A broker who has a history of working with freelancers can more easily guide you through the process and save you the legwork.
Mortgage requirements for self-employed workers often involve greater verification of documents and, sometimes, a more extensive analysis of their employment history.
