Self-Employed Mortgage Loan | Requirements 2026

A self-employed mortgage loan enables business owners, freelancers, and contractors to qualify for a home loan using documented self-employment income. Lenders examine income history, cash flow, and business stability more carefully because self-employed earnings can fluctuate. Borrowers often need additional documentation, greater cash reserves, or a larger down payment to compensate for income variability.

In this article (Skip to...)

• Self-employed mortgage loan requirements
• How to get a self-employed mortgage loan
• Self-employed mortgage loan options
• FAQ

Self-employed mortgage loan requirements

Most mortgage lenders require at least two years of steady self-employment before you can qualify for a home loan. Lenders define “self-employed” as a borrower with an ownership interest of 25% or more in a business, or one who is not a W-2 employee.

However, there are exceptions to the two-year rule:

• You might qualify with just one year of self-employment if you can show a two-year track record in a similar line of work. You’ll need to document an equal or greater income in the new role compared to the W2 position
• Some lenders will even count one year of related employment plus one year of formal education or training as an acceptable work history

If you’ve been self-employed for less than one year, you’re not likely to qualify for a home loan.

Mortgage program requirements

In addition to proving their employment history, self-employed borrowers need to meet standard loan program requirements. Guidelines vary by loan type but in general, as a self-employed home buyer, you’ll need to meet the following requirements:

• Credit score: Lenders typically require a credit score of 620 or higher. Maintain a good credit history and address any issues before applying.
• Debt-to-income ratio: Your debt-to-income ratio (DTI) should be below 43%. This ratio compares your monthly debt obligations to your monthly income. A lower ratio demonstrates your ability to manage debt and makes you a more attractive borrower.
• Stable income and cash flow: Lenders want to see that your business generates consistent income to cover your mortgage payments. Generally, they require a history of stable self-employment income for at least two years.
• Down payment: The down payment requirements for self-employed borrowers are similar to those for traditional borrowers. Depending on the loan type, you may need to put down as little as 3% (conventional loans) or 3.5% (FHA loans).
• Additional savings: Some lenders may require self-employed borrowers to have cash reserves to cover mortgage payments in case of business downturns. The amount varies but typically ranges from 6 to 12 months’ worth of mortgage payments.

How to get a self-employed mortgage loan

Although obtaining a mortgage as a self-employed person can seem overwhelming, the process can be easier to handle if you break it down into manageable steps. Here’s what you should know about qualifying for self-employed mortgages.

1. Determine if you’re considered self employed

For mortgage loans, you’re considered self-employed if you own 25% or more of a business, receive 1099 income for services rendered, or your income is documented in the Schedule C part of your personal tax returns. This includes:

• Sole proprietors, freelancers, and contract workers: If you’re the sole owner of an unincorporated business, you may be eligible for a 1099 employee mortgage loan.
• Partnerships: You share ownership of a business with one or more partners.
• Limited Liability Companies (LLCs): You have an ownership stake in a business that offers personal liability protection.
• Corporations: You own shares in a legal entity separate from its owners.

Lenders will generally consider any source of steady income that is stable, consistent, and ongoing when assessing business owners for a self-employed mortgage.

These types of income can be considered independently or as additional funds on top of a primary income source. For instance, mortgage lenders for 1099 employees may evaluate income from multiple sources to ensure financial stability. In some cases, lenders will even count unemployment income for contract or seasonal workers with a regular, documented history of receiving unemployment in the off-season.

For any sources of income, your loan officer must determine whether it will be “ongoing.” Generally, the income must seem likely to continue for at least three years after the loan closing. So your business prospects need to look good. A history of declining income will not improve your chances of qualifying for a mortgage.

2. Gather financial documents and proof of income

To prove your income and qualify for a self-employed mortgage loan, including a mortgage for 1099 employees, you’ll need to provide the following documents:

• Tax returns: Provide 1-2 years of personal and business tax returns, including all schedules and attachments. This includes:
  • 1099 forms for independent contractors or freelancers
  • Schedule C (profit or loss from business) for sole proprietorships
  • K-1 statements for partnerships
• Profit and loss statements and balance sheets: These financial statements provide a detailed breakdown of your business income, expenses, assets, and liabilities.
• Bank statements: Provide 12-24 months of personal and business bank statements to demonstrate your cash flow and financial management.
• Business license and client contracts (if applicable): These documents help demonstrate the legitimacy and stability of your business.

Organize these documents and be ready to provide additional documentation from the IRS if requested by the lender. The more organized and transparent you are about your finances, the smoother the mortgage loan application process will be.

Dealing with income inconsistencies

If your self-employment income fluctuates from year to year, lenders will generally use a 2-year average to calculate your qualifying income. Be prepared to explain any significant changes in income, such as:

• Business investments or expansions
• Economic factors affecting your industry
• Changes in clientele or contracts

“Loan officers will use the worst-case scenario,” says John Meyer, loan expert. “So if you made less in the most recent year, we will use a 12-month average, and if increasing year-over-year, then a 2-year average.”

Working with a Certified Public Accountant (CPA) can help you organize your finances and present them in the best light to mortgage lenders, especially when having to meet 1099 mortgage requirements.

3. Understand how lenders calculate self-employed income for a mortgage

Mortgage lenders typically use your net income (after deducting business expenses) to calculate your taxable income. They will determine if you have enough income to qualify for a mortgage by averaging your net income over 1-2 years based on your tax returns.

To calculate your net income, lenders will:

• Review your tax returns (1040) and find your total income.
• Subtract any W-2 income (if applicable) to determine your self-employment income.
• Add back certain deductions such as depreciation or depletion.
• Subtract other non-recurring losses or expenses to determine your adjusted gross income.
• Average your adjusted gross income over the past 1-2 years to determine your qualifying income.

Some lenders may use a “gross income” approach, adding back certain write-offs like depreciation to better reflect your true taxable income. Depreciation is a paper loss that doesn’t affect your actual cash flow. By adding it back, lenders can get a more accurate picture of your small business’s profitability.

For instance, say you earn $6,000 a month. But after deductions, your taxable income is only $4,000 per month. Here’s how your home buying budget changes:

*Example assumes a maximum debt-to-income ratio of 36%

In this example, losing $2,000 off your monthly income reduces your home buying budget by more than $150,000.

Do I have to report self-employed income?

Fannie Mae and Freddie Mac say that for conventional loans, self-employed income does not need to be reported if it’s not used to qualify for the mortgage.

In other words, if you can qualify based on W-2 income and personal savings alone — not using funds in a business account — then your lender can ignore the self-employment income and you don’t need to document it.

This provision also applies to borrowers living off of retirement income, social security income, pension payments, or investments and dividends. Note that these rules apply to conforming home loans. Guidelines for other types of loans may be different.

4. Compare loan options and shop for the best self-employed mortgage lenders

When shopping for a self-employed mortgage, including 1099 employee mortgage loans, look for lenders experienced with self-employment income, including non-qualified mortgage (QM) lenders.

Non-QM lenders offer mortgage loans that don’t conform to traditional lending guidelines, making them a great option for self-employed individuals with unique financial situations.

To find the best lender for your needs:

1. Research lenders online and read reviews from other self-employed borrowers.
2. Ask for recommendations from friends, family, or colleagues who have gone through the process.
3. Contact multiple lenders and ask about their experience with self-employed borrowers, loan options, and requirements.
4. Compare mortgage rates, fees, closing costs, and terms from at least 3-5 lenders before making a decision.

Working with a mortgage broker who understands the unique challenges of self-employed borrowers can also help streamline the mortgage process, from pre-approval to closing on your self-employed home loan.

Self-employed mortgage loan options

Self-employed borrowers qualify for all major mortgage options, including conforming loans backed by Fannie Mae and Freddie Mac, as well as government-backed FHA, VA, and USDA loans. Here’s a quick overview of how your loan options compare.

Bank statement loans

Conventional loans

FHA loans

VA loans

USDA loans

FAQs about self-employed mortgage loans

The bottom line: Self-employed mortgage loans

Buying a home or refinancing when you’re self-employed might not be as difficult as you think.

Self-employed people have access to the same mortgage programs and interest rates as other borrowers in today’s real estate market. But it’s up to you to shop around for the best self-employed mortgage loan program and lender that suits your needs.

Comparing at least three mortgage offers will help you find the lowest mortgage rate and best terms possible. You can begin the process today by clicking on the links below.