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Securing a Mortgage When You’re Self Employed

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Categories: Home Buying Tips

The guidelines for self employed borrowers can be very easy to mis-interpret. Please reach out for a free evaluation. In a worst case scenario we’ll let you know how you can prepare.

Securing a mortgage when you’re self-employed can seem daunting compared to the process for salaried individuals. The flexibility and independence of self-employment come with the challenge of proving a stable and reliable income to lenders.

However, with proper preparation and understanding of what lenders are looking for, self-employed individuals can position themselves as strong candidates for a mortgage. This article offers guidance on how to navigate the mortgage application process when you’re self-employed.

Understanding the Challenge

For lenders, the main concern when approving a mortgage is the borrower’s ability to make consistent payments. While salaried workers can easily provide proof of income through W-2 forms and pay stubs, self-employed individuals have a more complex income structure that can fluctuate significantly. This perceived unpredictability is what makes the process more challenging for those who work for themselves.

Preparing Your Application

1. Organize Your Financial Documents

The first step in making your case to lenders is to have your financial documents in order. This includes tax returns, profit and loss statements, bank statements, and any other documentation that proves your income. Most lenders require at least two years of tax returns to see that your income is stable or increasing.

2. Maintain a Healthy Credit Score

A strong credit score is vital for any mortgage application but becomes even more critical for self-employed individuals. Ensure you pay your bills on time, keep your credit utilization low, and check your credit report regularly to correct any errors.

3. Save for a Higher Down Payment

Having a larger down payment can sometimes offset the perceived risk lenders see in self-employed borrowers. A down payment of 20% or more can not only help you qualify for a mortgage but also avoid paying private mortgage insurance (PMI), which can save you money in the long run.

4. Keep Your Personal and Business Finances Separate

This helps to clearly demonstrate your personal income, making it easier for lenders to assess your mortgage affordability.

5. Consider a Co-Signer

If you’re finding it difficult to qualify on your own, a co-signer with a stable income and good credit can bolster your application. Just be sure that both you and your co-signer understand the responsibilities involved.

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Understanding Lender Concerns

To secure a mortgage, it’s crucial to understand what lenders are looking for:

  • Stability of Income:

    Lenders want to see that your income is stable and likely to continue into the future. This can be demonstrated through consistent or increasing income over the past two years.

  • Debt-to-Income Ratio (DTI):

Your DTI ratio is a critical factor in the application process. Lenders typically prefer a DTI ratio of 43% or lower. You can improve your DTI by paying down debt before applying for a mortgage.

  • Cash Reserves:

Having significant savings can make you a more attractive candidate as it shows lenders that you can cover mortgage payments even if your business faces a downturn.

The Role of Mortgage Brokers and Lenders

For self-employed individuals, working with a mortgage broker can be particularly beneficial. Brokers have experience with various lending scenarios and can guide you to lenders who are more open to self-employed borrowers. Additionally, some lenders specialize in self-employed mortgages and may offer more flexible criteria.


Securing a mortgage while self-employed is undoubtedly challenging, but with the right preparation and understanding of what lenders are looking for, it is achievable. By organizing your finances, maintaining a healthy credit score, saving for a substantial down payment, and possibly working with a mortgage broker, you can increase your chances of success. Remember, every lender has different criteria, so don’t be discouraged by initial rejections. With persistence and careful planning, you can find a mortgage that suits your self-employed status.

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