How to Get a Mortgage As a Self-Employed Business Owner

Small business owners are self-employed individuals who already have a lot on their plates. When applying for a mortgage for your home, you could also face more challenges than other individuals, since lenders want proof of reliable and consistent income. However, financing your home doesn't have to be out of reach once you understand the process. 

When you're ready to protect your home with the right coverage, a local independent insurance agent can help. They'll get you matched to a homeowners insurance policy that includes all the protection you need. But first, use our guide to qualifying for a mortgage as a self-employed small business owner to turn your dream of owning a home into a reality.

Can Self-Employed Business Owners Qualify for a Mortgage?

Yes, even self-employed small business owners can qualify for a mortgage. The process just may include a few extra steps compared to traditional W-2 employees who can show consistent pay stubs to mortgage lenders. But as long as you can provide proof of a good credit history, a history of stable employment, and sufficient liquid available assets, a home mortgage can be yours.

5 Easy Steps to Get a Mortgage as a Small Business Owner

The process of getting approved for a home loan is fairly similar whether you're a W-2 employee or a self-employed business owner. It's helpful to know which documents you need to have prepared to verify your income to the mortgage lender. These lenders are looking for proof that you are a creditworthy individual who can responsibly handle their mortgage payments on time. 

As a small business owner, you can follow these simple steps to qualify for a mortgage.

1. Determine Your Employment Classification

Your federal tax returns show your taxable income, which is an essential component of the mortgage loan application process. These forms also depict your employment classification, such as whether you're considered a self-employed worker, freelancer, or salaried worker. Freelancers report their taxes using 1099 forms, salaried employees use W-2 forms, and self-employed individuals use 1040 forms. 

You can also determine that you're classified as self-employed if any of the following are true:

• You own a business or have one business partner
• You operate a business as an independent contractor
• You operate a business as a sole proprietor
• You operate a part-time business that supplies the majority of your income
• You're in a partnership that operates a business or trade
• You're a gig worker, and that supplies the majority of your income

Knowing whether you're officially classified as a self-employed individual will help you complete the home mortgage application process correctly.

2. Craft Your Pitch

Proving that you earn a reliable, consistent income is the main objective when applying for a home mortgage. In some instances, you might be asked to provide a business plan to the mortgage lender. In other cases, simply preparing proof that your business and services are lucrative and will remain in demand over time can suffice. 

It's also helpful to provide proof to the lender that you are a serious and professional business owner. The following documents and reports can help you craft a successful pitch when applying for a home mortgage.

• Tax returns that demonstrate revenue growth over time
• Business plan
• Your official website or business profile
• Contracts and business agreements that show you're on retainer
• Detailed explanations for any gaps in revenue
• A complete description of your business's operations and services
• Continuing client contracts
• Certifications and proof of business experience
• Statistics and official figures proving your industry's demand and staying power

Basically, the more documentation you can offer to the mortgage lender that provides proof of a reliable or growing income, the more beneficial it can be.

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3. Prepare Official Documents

After you've gathered and prepared documents that show proof of professionalism and longevity in your business, you'll also need to gather specific documents to provide proof of income and employment verification. You might be required to provide several additional documents providing proof of income as compared to salaried workers. 

The following documents usually qualify as official proof of employment and income:

Employment verification documents

1. Business licenses
2. Certificate of business insurance
3. State and/or federal permits
4. Articles of business incorporation, LLC, or partnership

Proof of income documents 

1. Two years of federal income tax returns, or more if they demonstrate proof of income growth
2. Itemized lists of unpaid accounts receivable
3. Recent bank statements
4. Profit-and-loss reports 

Gathering and preparing all of these documents ahead of time can help streamline the process of qualifying for a home mortgage and improve your chances of being approved.

4. Shop and Compare Mortgage Lenders

Just as you shop and compare quotes for insurance, you can do the same for mortgage lenders. A loan officer with experience in underwriting self-employment mortgages can be a great asset for this process. They can increase your approval odds by providing better explanations of your creditworthiness to the mortgage lender. Mortgage brokers can also assist you in finding self-employment mortgage lenders.

You may also want to consider mortgage lenders who offer FHA loans. These can be a better option for small business owners and other self-employed individuals than traditional loans. FHA loans are guaranteed by the government, which can reduce the mortgage lender's risk, thus increasing their chances of approving an applicant who is a self-employed small business owner. 

5. Compare Your Loan Options

As a small business owner, you have just as many options for loan types as other mortgage applicants. You can seek a private lender for a conventional loan or secure a loan backed by the government. Here are the main types of mortgage loans you can choose from.

• VA mortgage loans: These are offered to current active-duty service members and veterans. One major advantage of these loans is that they come with no down payment, as they can guarantee up to 100% of what you borrow. Mortgage lenders may be more likely to approve you if you can provide a VA home loan certificate of eligibility. 
• FHA mortgage loans: These are government-backed loans guaranteed by the Federal Housing Administration. They require only a 3.5% down payment from most applicants. These loans are also often more likely to be approved by mortgage lenders for self-employed small business owners.
• Fannie Mae and Freddie Mac mortgage loans: These are traditional conforming loans that come with stricter approval requirements than other types of mortgage loans. They require a minimum of a 3% down payment from the applicant. Self-employed small business owners may have more of a challenge in getting approved for this type of mortgage loan. However, the longer you remain successful in your business, the greater your likelihood of getting approved.
• Non-qualified mortgage lenders: These are non-conforming loans that can come with less strict approval requirements. You may only need to provide bank statements for the last year or two to show proof of your creditworthiness, as federal qualifications are not used. 

Being familiar with the type of mortgage loan you're seeking before starting the application process may help you get approved faster.

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Don't Forget the Homeowners Insurance

Once you're qualified for a home mortgage, it's time to protect your investment even further with the right homeowners insurance policy. A local independent insurance agent can help you shop and compare policies and quotes from multiple home insurance companies to get you equipped with the best blend of coverage and cost. And down the road, your agent will still be there to help file home insurance claims or update your coverage as necessary.