How to Get a Home Loan if You're Self-Employed

Several programs are available for self-employed individuals, including DSCR (Debt Service Coverage Ratio) loans, which evaluate rental income and cash flow rather than just taxable income. Some lenders may also offer stated income or bank statement loans for borrowers struggling to prove income with traditional tax returns.

Lenders typically prefer at least two years of self-employment to demonstrate stability. However, some lenders may accept one year of self-employment or use alternative documentation (like recent business contracts or bank statements) to assess income stability. Qualifying may be more challenging if you’ve been self-employed for less than a year, but it's not impossible with the correct documentation.

Income verification: A traditional mortgage requires W-2 forms for salaried employees, while a 1099 mortgage loan uses 1099 forms and tax returns to assess income for self-employed individuals.

Documentation: The documentation is typically straightforward for traditional mortgages, but 1099 mortgages may require more detailed records of income and business activity (e.g., P&L statements).

Approval criteria: Traditional loans may have stricter income verification, while 1099 loans offer more flexibility for self-employed borrowers.

You can use a 1099 mortgage loan to purchase second homes or investment properties. However, the down payment for investment properties may be higher, and interest rates might be slightly higher than primary residence loans.

The required credit score varies by lender but typically is at least 700. The stronger your credit score, the better your chances of qualifying and receiving favorable loan terms. If your credit score is lower, you might still qualify but could face higher interest rates or more stringent conditions.

Yes, 1099 mortgage loans are available for various property types, including:

• Primary residences
• Second homes
• Investment properties

However, loan terms may vary depending on the property type, and investment properties may require larger down payments.

Interest rates for 1099 mortgage loans can be slightly higher than conventional mortgages, especially if the lender views your income as more complex to verify or if you have a non-traditional source of income. Rates will vary depending on your credit score, loan amount, down payment, and other financial factors.

Down payments for 1099 mortgage loans are typically higher than those for traditional loans; the minimum is 20% down. The required down payment can vary based on factors like your credit score, the type of loan, and the lender’s policies.

Lenders typically calculate your net income (after business expenses) from your tax returns. They look at your adjusted gross income (AGI) from your tax return. Write-offs (deductions) that reduce your taxable income may lower the income the lender considers for loan approval. For example, writing off a lot of business expenses could reduce your income on paper, making it harder to qualify for a larger loan. Some lenders may use gross income (before deductions) if it provides a better estimate of your actual earning capacity.

1099 forms: The actual 1099 tax forms for the last 1-2 years.

Tax returns: Two years of tax returns (including all schedules) are typically required. Lenders usually want to see Schedule C (profit or loss from a business) and Schedule E (rental income) to assess your business or freelance income.

Bank statements: Lenders will also request recent bank statements (usually 2-3 months) to evaluate your cash flow and deposits.

Profit and Loss statement (P&L): Some lenders may request a P&L statement or balance sheet to assess your business's income and expenses.

Credit report: Lenders will check your credit score to determine your loan eligibility.

Self-employed individuals who receive income through 1099 forms. Freelancers, contractors, business owners, and individuals who do not receive a regular W-2 paycheck. Borrowers with at least two years of stable 1099 income are often required to qualify, although some lenders like NASB may accept one year. The borrower’s income will be evaluated by reviewing tax returns, bank statements, and profit and loss (P&L) statements.

To be eligible for this program, you must secure a minimum loan amount of $175,000. Exceptions include mortgage products for properties located within the Greater Kansas City metropolitan area and its surrounding areas. Contact a NASB Loan Officer for details on the excluded areas and/or zip codes.

• The last 12 months of 1099-NEC income
• Documentation of year-to-date income
• 700 minimum credit score
• 100% of 1099-NEC income considered

Yes, bank statement loans can be used to refinance existing properties, whether a cash-out or a rate-and-term refinance.

The same requirements apply regarding bank statements, credit scores, and down payment.

Flexible documentation: Bank statement loans are a good option for self-employed individuals or people with unconventional incomes who can’t provide traditional proof of income.

Fewer requirements: Compared to conventional loans, there are fewer requirements, such as not needing tax returns or W-2s.

Easier approval for non-traditional income: Those with non-salaried income sources (like contract or freelance work) may find qualifying easier.

Primary residences: You can use a bank statement loan to buy a home you plan to live in.

Second homes: A bank statement loan may be used to purchase a vacation or second home.

Investment properties: Some lenders also allow bank statement loans to finance investment properties that generate rental income.

Bank statement loans often require larger down payments (typically 10%- 20% or more). The larger down payment helps offset the additional risk lenders take on since income verification is less traditional.

The loan amount you can qualify for will depend on the average income calculated from your bank statements and your debt-to-income (DTI) ratio. Lenders typically set limits based on income and other factors, such as the type of property (primary residence, second home, investment property).