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.
Mortgage lenders evaluate self-employed customers the same way they would look at others. They want to make sure you have a decent credit score. They will also look at your debt-to-income ratio (DTI) to determine if you can pay the mortgage payment associated with the loan. Finally, lenders will examine asset and income statements to verify their resources.
Self-employed borrowers can obtain approval by showing two years of self-employment history. If you have at least one year of self-employment, you can still get approval by showing that you worked in a similar field for at least two years before becoming a self-employed person. Self-employed mortgage borrowers may qualify for conventional and backed loans. You're more likely to get approved and have favorable loan terms if you have a good credit score, have been in business for two years or more, and can demonstrate reliable income.
You may also qualify with a co-signer who has a high credit score. 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 for obtaining approval for a mortgage if you are self-employed. 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. 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 ratio (LTV).
Some lenders may worry that you won't earn a stable enough income to make your 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. 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. For self-employed borrowers, the most difficult part of the mortgage application process often involves gathering proof of income and verifying employment.
A broker who has a history of working with freelancers can more easily guide you through the process and save you the legwork. Self-employed mortgage borrowers can apply for the same loans “traditionally employed borrowers can do it”. Because of this, self-employed mortgage applicants generally have to meet a higher threshold of lender requirements to obtain a home loan. 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.
You'll need to provide certain documentation to verify your work income and prove to the lender that you are eligible for a mortgage. .