Securing a home loan if you’re self-employed

Small business might be the backbone of America, but those who have the courage to go down this path, often also providing employment for others, can find it challenging to secure a mortgage.

While lenders may set a higher bar for the self-employed, it is worth persevering with an application. If you use a mortgage broker, they will navigate the process with you.

This snapshot of what a lender requires may be useful if you are now self-employed and seeking to enter the property market.

Personal bank statements

Like any other borrower, you’ll need to provide bank statements that cover at least the previous two months. This check of your income and outgoings will indicate whether you have the cash flow to afford a loan.

Credit rating

Lenders will go to your credit rating to ascertain whether you have bad debts or a history of failing to make payments. Again, every loan applicant faces this check.

Two years of federal tax returns

Because you’re self-employed, a lender will verify your earnings records with the IRS, essentially matching your income to the taxes that have been filed. 

Profit and loss

You’ll need to present the lender with a profit and loss statement. It’s seen as additional evidence that your business has income and legitimate work-related expenses. This statement requires a form called a 1040 Schedule C. Owners of incorporated companies have one of two other forms: an S-corp or C-corp.

Licenses

If you require a license to operate your business, a lender will insist on it being presented. Typically, this is a check to ensure you’re a legitimate plumber, electrician or another operator who requires a license to operate legally.