Self-employed and house hunting? Here’s tips on how to get your mortgage

Self-employed professionals can qualify for a mortgage, but the process differs from traditional borrowers. Proper documentation, such as tax returns and profit/loss statements, is key.

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StatePoint - If you’re self-employed or own a business, you may be wondering if it’s possible to get a mortgage.

The short answer is yes, you can, but the process will look different. You’ll need to provide documentation verifying your employment and lenders will be analyzing your financial situation and the financial situation of your business to see how likely you are to pay back your loans in a timely manner.

To help you put your best foot forward, Wells Fargo is offering guidance on navigating the home loan process.

What does it mean to be self-employed?

Typically, lenders consider an applicant self-employed if they meet any of the following:

They own at least 25% of a business
The ownership of a business is their major source of income
They complete a 1099 tax form during tax filing instead of a W-2
They’re an entrepreneur or sole proprietor whose income is filed under Schedule C of their tax returns
They’re an independent contractor or service provider

If you fit into these categories, you’ll also need to show lenders verified employment records or proof of self-employment during the past two years. Lenders are ideally looking for your business to have been active for at least 12 consecutive months. They review the overall health of the business, looking at both net income and expenses.

What employment documentation is needed?

When lenders review your application, they’re analyzing items like how stable your income is, if your business has strong finances, and what the future may look like for you and your business. Any of the following forms of documentation can help lenders show proof of your employee verification:

Business licenses and/or DBA certificates
Proof of correspondence with CPAs and/or clients
Proof of business insurance
Profit/loss statements or balance sheets reflecting your business’s performance
Lenders’ requirements vary. Check with yours for what will be required for your situation.

What tax return requirements are needed?

Personal tax returns under IRS Form 1040 include various schedules. Commonly used schedules are:

Schedule B (Form 1040) – Interest and ordinary dividends
Schedule C (Form 1040) – Profit or Loss from Business (Sole proprietorship)
Schedule D (Form 1040) – Capital Gains and Losses
Schedule E (Form 1040) – Supplemental Income and Loss
Schedule F (Form 1040) – Profit or Loss from Farming

For business tax returns, a business may choose to report taxable income either on a calendar year or fiscal year basis. Commonly used forms include:

IRS Form 1065 – U.S. Return of Partnership Income
IRS Form 1120S – U.S. Income Tax Return for an S Corporation
IRS Form 1120 – U.S. Corporation Income Tax Return

What factors show the strength of your borrowing ability?

Having a favorable debt-to-income ratio and credit score. A strong credit history shows lenders your ability to repay debts and utilize credit responsibly.

If you are self-employed, there are methods available to help make your goal of homeownership a reality

Staying organized. Keep expenses separate if you have multiple income sources, and separate business and personal accounts so that lenders can more easily tell which assets are which.

Having additional support, especially for closing. Certain factors may lower your risk for lenders, like utilizing a co-signer or borrower or paying a higher-percentage down payment than what’s required.

What’s next?

If you are self-employed, there are methods available to help make your goal of homeownership a reality. For example, eligible self-employed borrowers with Wells Fargo may have access to a variety of loans, such as VA or FHA loans or Wells Fargo products like Dream. Plan. Home. and the Homebuyer Access grant. Information can be found online about the eligibility requirements and personal tax implications of these products.

Talk to a home mortgage consultant to learn more about what your mortgage process may look like. Also, check out Wells Fargo’s home lending portal for personalized rate quote tools and for its content library featuring helpful articles. These can be found at https://www.wellsfargo.com.

“While self-employment makes obtaining a mortgage a bit more complex, your lender will walk you through the process, step by step,” says Rulon Washington, mortgage sustainability, Wells Fargo.

Tags: self-employed mortgage process, Wells Fargo home loan guide, mortgage approval for business owners, freelance home loan requirements, entrepreneur home financing tips