The myth that the self-employed cannot get a mortgage is wrong. If you are self-employed, you probably already know that it could be a little harder to get a mortgage than someone who works for a large company.

If you want to own your own home but think it’s impossible as a self-employed individual, then you need to keep reading. People who are self-employed can get mortgages; it just requires some creative thinking and a little forethought about what information you should be keeping track of. It can even take less paperwork.

In this self-employed mortgage guide, we will dispel the myth that self-employed people cannot qualify for a mortgage, help you understand the lending criteria lenders will look for, explore alternative financing, and share useful tips, resources, and testimonials to help you on your path to homeownership as an entrepreneur. 

After reading this guide, you should have a good understanding of the qualifications required and how to get a mortgage even when self-employed, what and how to prepare ahead of time to ensure your success, identify the types of documentation to track and compile, and how to make yourself more attractive to lenders. Are you ready?

Myth: the self-employed cannot get mortgages

Self-employed entrepreneurs dream of homeownership just as often as their traditionally employed counterparts if not more so. They just reject the illusion that being an employee equals income security and they pursue the freedom that owning their own business can provide. Unfortunately, trying to get a mortgage while self-employed can be a bit more involved. This has caused many to believe the false notion that the self-employed cannot qualify for home loans. Let’s dispel the myth once and for all that self-employed individuals cannot qualify for a mortgage. They can. 

Why banks want to lend money

Lenders want to lend money. It’s how they make a profit, after all. But they also want to mitigate their risk because “risky” often equals “losing money.” The self-employed business owner should be able to relate. So the goal, regardless of where your income comes from, is to show lenders that you are not a risky investment. It’s a matter of trust.

So, for the self-employed, that means more proof that you are trustworthy and that you have the financial means to make the payments, and that requires a bit of planning ahead of time. The good news is that while being a self-employed borrower can present challenges, acquiring financing is not impossible.

Given the large amount of credit being extended, this is one of the riskiest loans for lenders and therefore the most difficult to qualify for. You will need to build enough reserves to cover your down payment and closing costs. This is where some may feel a bit defeated before they even start. But don’t worry! There are a lot of ways you can work on building that reserve, and while you are doing that, you can be preparing the paper trail you will need to successfully finance the rest.

When self-employed borrowers apply for a mortgage, banks and other lenders will want to look at the last two or three years of accounts to see how much they have earned. Using tax returns can cause some difficulty because the business deductions can make it look as though you are making less than you do, and that is one area where the myth gets its traction.

Let’s dig into lending criteria to qualify as self-employed.

Self-employed mortgage lending criteria

Definition-wise, mortgage criteria is simply the standard on which a judgment or decision is based. It is the benchmark or yardstick by which lenders gauge whether doing business with you is worth the risk. To increase your chances of qualifying for a mortgage while self-employed, it helps if you have a basic knowledge of what criteria lenders are looking for.

Unlike a W-2 employee, the nontraditional income structure of the self-employed generally means you will need to show more documentation regarding your income and its stability. While the financial strength of your business and its ability to generate sufficient future income is kind of a no-brainer, the location and nature of your self-employment may fall under the microscope as well. 

The requirements may differ slightly from one lender to another; however, there are a few criteria that all of them tend to take into account before making their decision. It can sometimes be difficult to understand everything that these companies are requiring in order to make their process easy, so it is important that you read the fine print to identify what they may expect from you. Here are a few things to look for.

  • At least two years of federal tax returns both personal and business (for many, this is a 1040 with a Schedule C)
  • Recent business bank statements
  • Recent detailed profit-and-loss statements
  • Copy of your business license
  • Letter from your CPA verifying you have been in business for at least two years
  • Recent credit reports from all three reporting agencies, credit score, and credit history
  • Proof of all other income
  • Business banking statements
  • Proof of savings for deposits and closing costs
  • Etc.

The number of criteria you can successfully meet will determine the amount you will be allowed to borrow, what your interest rates will be, and how many lenders and options will be available to you.

Credit score

Credit score (FICO) is probably the number-one thing most think of when considering purchasing a home, and it’s definitely a determining factor when it comes to interest rates. However, there are lenders and financing options out there that will still work with a borrower with less than a stellar credit score or even no score at all. Since buying a home isn’t generally an impulse buy for most people, you should have a little time to make some changes to your credit score. 

Things you can do to improve your credit score

There are a few things you can do to raise your FICO score while you are preparing, such as correcting inaccurate information on your report, catching up on any bills you are behind on (and staying current), taking care of any negative dings to your credit, and paying down any large balances for a better debt-to-income ratio. 

If you have a credit score of zero because you carry no personal or business debt or open credit, and if you have at least six months before you plan to apply for a mortgage, you might consider a small personal loan and an open line of credit through your bank in order to establish a baseline. Just keep in mind the factors that go into determining a FICO score, besides on-time payments, such as length of time since accounts were opened and debt-equity ratio. 

Income stability and tax returns

Since self-employed business owners often take full advantage of legal tax deductions and allowable write-offs, their tax returns tend to show a low net income or possibly even a loss. Unfortunately, that is one of the challenges when qualifying for a mortgage. While the gross income of a salaried employee is standard for determining debt-to-income ratios, it is the net income that is used for the self-employed. 

Self-employed borrowers can sometimes get around this problem by using a type of mortgage called a bank statement loan, which allows you to qualify on the basis of the total amount that goes into the bank. To apply, they can provide the mortgage lender with a regular deposit showing the amount of money in their bank account as well as the balance in their savings account. For applicants who work for themselves, lenders have traditionally tried to check the self-employed borrower’s income on bank statements for 1-2 years for both business and personal.

One of the main reasons for being denied a loan when self-employed is that you may not have been self-employed for long enough. Since many new businesses fail in the first couple of years, the longer a business has been in business the stronger it looks. Some good news is if you have owned your business for more than five years, business tax returns are not required on loans through Fannie Mae and Freddie Mac (although new rules may change this). However, if it is less than two years old, you will want to prepare to show information on previous employment, tax returns, and financial statements. This is why working with lenders who are self-employed friendly will come in handy, because they understand your situation and know what to look for.

Preparing to get a mortgage

Lenders are not going to approve self-employed mortgage loans unless you can provide the documentation that the company needs to make your loan process easier. That is where preparation comes in. As previously stated buying a home is not an impulse buy, even for the W-2 employee, so planning and goal setting is important. You could be looking ahead as much as 12–24 months. Less if you already have some of your ducks in a row. Now is the time to begin checking your credit reports and gathering information. If you do not have a system to keep track and compile the necessary documentation then that is where you should start. Create a timeline, determine some milestones, and set your goals. Here are some tips and tools to help you.

Self-employed mortgage tips and tools

  • Preparing your accounts and income figures is the first and most important step along with working out your budget to make sure your mortgage is affordable both now and in the future. Consider setting business targets based on the estimated mortgage repayments, your future cost of living, down payment, and closing costs. The mortgage calculator on this page will help you do just that:
  • Once you know these numbers, set your annual, quarterly, monthly, or even weekly or daily targets to accrue the funds you need. 
  • Shop local. While larger mortgage companies like Bank of America can be a great resource, oftentimes local community banks will allow for more flexibility. If one bank turns you down, don’t fret, another around the corner may say yes.
  • Establishing an emergency fund shows lenders that you plan ahead to decrease risk. That also reduces their risk, making you a more attractive borrower. A fully-funded emergency fund should be enough to cover expenses for six months. 
  • Consider planning bi-weekly payments, which can shave off an extra payment each year and throw any windfalls at the principal. This will also reduce the overall interest you pay.
  • Check with your accountant ahead of time to make sure you are showing enough income. 
  • Another option is finding a cosigner, but that is not always ideal.
  • Make the largest down payment you can. The more “skin” a borrower has in the game, the more trust a lender has that they will not default. Another benefit of sizeable down payments is lower interest rates.
  • One way to boost your credit is to lower your debt to income ratio. So pay down any existing debt.
  • Working with someone experienced in self-employed business documentation means that they can help you present your self-employed income in a way that lenders and underwriters understand to facilitate the process and increase the odds of approval.
  • If you are currently renting or paying a mortgage, proof of those payments can show that you are already capable of making the payments.
  • Avoid opening new credit accounts or taking on any new debt at least six months prior to applying for a mortgage.

In a nutshell, you need to have a history of stable income, enough available savings, and a good credit history.

Creative mortgage financing for the self-employed 

Rent-to-own: lease option and contract for deed

At Home Equity Partner, we always recommend trying to exhaust all resources to get a bank loan first. Some of the better lenders offered to self-employed buyers are Angel Oak and Angelo Christian.        

However, many people struggle to buy their primary home because they cannot qualify for a bank loan. If you have been denied, or just can’t quite meet the criteria necessary for a bank mortgage in time, that is where Home Equity Partner can help. We raise private capital to buy homes for people so they can finally become a homeowner.

Typically this is a 1–5 year bridge loan (lease option or contract for deed) that allows them to act as a homeowner while they work to obtain a bank loan. We take a look at your complete financial picture. Then, if Home Equity Partner is a good fit for you, we will proceed to the next steps.

How Does Home Equity Partner Work? 

1) Fill out an application to get a max home purchase pre-approval. 

2) Pick any home listed for sale (not just from a limited inventory list) that fits in your price range. 

3) We buy that home for you as a rent-to-own (lease option) or contract for deed. 

Rent to own options for self-employed

A rent-to-own contract is a valid creative option for an individual or a family to begin to reap some of the benefits of homeownership without having to be lender approved or put down a large down payment on a home. With a rent-to-own, there are fewer barriers to entry than one might typically see when they are looking into homeownership. 

Traditional lenders adhere to a strict set of qualifications that borrowers must meet in order to obtain a bank loan. In a rent-to-own, these qualifications are much easier to meet. An individual’s credit score is often the determining factor that will cause them to not be approved for a traditional bank loan. 

Through a rent-to-own program, tenant-buyers are able to start living in the home of their dreams right away while they work to get their credit and finances in order. Most often, you will need to find homes that offer rent-to-own availability, which can be difficult. Our process is a little different. The tenant-buyer will pick out a house that is listed “for sale” that they are interested in. Home Equity Partner buys the home and in turn rents it back to the tenant-buyer for a term of 3–5 years.  Some common national companies that you can check out are Home Partner of America and Divvy Homes.


  • A smaller deposit is needed compared to a traditional 20% down with a bank loan.
  • It is a great option for individuals with marginal credit and job history.
  • You can build equity as you live in the home. 
  • Lock in a purchase price at move-in! 
  • You have the option to not purchase the home at the end of the initial term in case it is not your dream home. 
  • Your payments each month are applied as a credit back to you. This way part of your money is going toward your home purchase. 

Potential risks

  • If you don’t buy or sell the home, you can lose your down payment and equity.
  • It takes time. It can take 1–5 years to obtain a bank loan to complete the contract.
  • You act as the homeowner and are in charge of home maintenance and repairs.

Each month that the tenant pays rent, it gets reported to a credit agency, which increases their credit score. In addition, each month, a chunk of the tenant buyer’s monthly payment goes toward their future down payment on the home. There is a set purchase price that is included in the lease that is predetermined and gives the tenant-buyer exclusive rights to purchase the home at any time during their lease. You cannot be forced to move.

If the tenant-buyer is unable to purchase the home during their initial lease, they will be able to extend their lease and keep accumulating money to go toward their down payment. If after the initial lease, the tenant-buyer decides the home just isn’t for them, they are able to 1) walk away without the financial burden of holding on to the home or 2) sell the home.


Clearly, the myth that the self-employed cannot qualify for mortgages should be laid to rest for good. With a little foreknowledge, all additional documentation can be compiled and prep work accomplished easily enough. Conventional loans, FHA loans, and bank statement loans are among the mortgage options that can be available for the self-employed and, with the growth in the side-gig economy, more lenders will have to become more familiar and friendly to self-employed borrowers. But even if those options fail, there are still other possibilities available to you.

Self-employed friendly mortgage lenders

Although the methods used to calculate eligibility for income can vary considerably, the trick for self-employed borrowers is to ensure that they turn to the lender who is most favorable to them. 

Adam Zach and Jon Enright are the creators of Home Equity Partner and provide a variety of custom housing options to future homeowners through a unique renting option. Here at Home Equity Partner, we have developed a new tool that allows you to pick any home listed for sale and live in it. We specialize in rent-to-own and seek to help individuals and families gain homeownership to live the American Dream.

Home Equity Partner is a 2019 Greater Grand Forks Chambers Shark Tank winner, 2019 Innovate ND Phase I and Phase II, and 2020 DisruptWell award for their innovation, scale, and solutions.


Home Equity Partner Flow Chart

This interactive Mind Map is the perfect tool to help you identify the best financing path for your situation. Start with “Have You Tried to Get a Bank Loan?” Follow your answers to land on 1 of 4 options LINK

The Pre-Approved Podcast

Becoming a Homeowner When The Bank Says No. This podcast is dedicated to the 1 in 10 homeowners denied each year by the banks. We will discuss Rent-to-Own, Lease Options, Contract for Deed, Qualifying Mortgages, Non-QM Loans, and Private Mortgages. 

The Nine-Step Process for Tenant-Buyers Using Home Equity Partner

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