For many, being self-employed is the ultimate way to achieve financial independence. Setting your own hours, working from home and maintaining a solid work-life balance—what’s not to love? But when it comes to buying a home, self-employment can make the mortgage process feel a bit more complicated.
Lenders look for stability and consistent income, which can be tricky when you don’t have a traditional paycheck. The good news? With the right approach, securing a home loan is absolutely possible. Here’s what you need to know to improve your chances of approval.
If you own 25% or more of a business, lenders classify you as self-employed. This applies to freelancers, independent contractors, small business owners and even some gig workers.
Since traditional employment verification doesn’t apply, lenders will need to see a strong financial history to assess your ability to repay a loan. That’s why preparing your finances ahead of time is key.
Without a W-2, lenders rely on tax returns to verify your income. One of the best things you can do is complete IRS Form 4506-T, which allows lenders to pull your tax transcripts directly from the IRS. Having multiple years of solid earnings on record will help establish financial stability.
If your income fluctuates from year to year, consider showing additional documentation such as bank statements, profit-and-loss statements or client contracts to reinforce your ability to meet mortgage payments.
A strong credit score can make all the difference in securing a competitive mortgage rate. If your score is on the lower side, take steps to improve it before applying.
Lenders typically consider a score in the mid-700s as good and anything above 800 as excellent. The higher your score, the better your loan terms.
A larger down payment reduces risk for the lender, making your application more appealing. While some loan programs allow as little as 3% down, putting down at least 6%—or ideally 20%—can help you in several ways:
If saving for a bigger down payment isn’t an option, consider looking into down payment assistance programs or working with a lender that specializes in loans for self-employed borrowers.
One of the perks of self-employment is maximizing deductions to lower taxable income. But when applying for a mortgage, a lower taxable income can work against you. Lenders assess your ability to repay the loan based on your net income after deductions—not your gross revenue.
If homeownership is on your horizon, consider reducing your deductions for at least two years before applying for a mortgage. This will help reflect a higher qualifying income on paper.
Lenders use the debt-to-income (DTI) ratio to determine how much of your earnings go toward debt payments. A healthy DTI shows you can comfortably take on a mortgage without overextending yourself.
Ideally, your housing-related expenses (mortgage, taxes and insurance) shouldn’t exceed 29% of your income. Your total debt payments—including credit cards, car loans and student loans—should stay under 36%.
If your DTI is too high, consider paying down existing debt before applying for a loan.
Not all lenders specialize in working with self-employed borrowers, so choosing the right one can make a significant difference. Some lenders are more familiar with evaluating non-traditional income sources and can offer loan programs tailored to your situation.
If you’re looking for a home builder in the St. Louis region, at Rolwes Company we have helped many of our buyers connect with lenders who understand the unique challenges of self-employed homebuyers.
Owning a home while self-employed is absolutely within reach—it just takes the right preparation. By organizing your finances, improving your credit and working with a knowledgeable lender, you can put yourself in the best position to secure a loan.
At Rolwes Company, we build high-quality new homes designed for the way you live. If you’re ready to find your next home, we can also connect you with preferred lenders who understand the needs of self-employed buyers and can help you navigate the mortgage process with confidence.
Contact us today to start your journey toward owning a brand-new home built just for you.
