Being self-employed means you get to be your own boss — you take on the assignments you want, when you want, answering only to yourself. That kind of freedom is a beautiful thing, but it also comes with some added responsibility. Since self-employed income could fluctuate considerably compared to someone on a monthly salary, there may be a bit of additional paperwork required when taking out a loan to buy a home. Let’s take a closer look at what documents you need for a mortgage if you’re self-employed.
Mortgages for the self-employed
When a lender is considering your mortgage application, they’ll look at your income statements. This helps them determine if you make enough money to be able to take on that loan — presently and in the future. This is relatively straightforward when the applicant has an employer and consistent income. Proof of steady earnings is right there on every pay stub.
With a mortgage for the self-employed, you’ll still submit a standard mortgage application the same way anyone else would. But being self-employed can mean potential income fluctuations (like a seasonal business, for instance), and lenders can’t just go ask your employer for pay stubs. As a result, they may need to ask you for more documentation.
Documentation for a self-employed borrower
Let’s get into the specifics of what additional mortgage documentation you may need as a self-employed borrower:
- Employment verification: Most mortgage applicants need to prove they’re steadily employed. In the case of someone who’s self-employed, this proof may be:
- State and business licenses you hold
- Proof of client relationships
- Proof of business insurance
- Letters from a professional organization that can attest to your business
- Proof of income: For those who aren’t self-employed, this usually includes paystubs and W2 forms. For the self-employed, it may also take the form of additional documents like:
- Personal and business tax returns and bank statements
- Your business’ profit and loss statements, in addition to a balance sheet from the most recent business period
- Proof of any additional income such as investment dividends or rental income
There are some things you’ll likely need to provide regardless of your employment status. Different lenders have different requirements for what kind of documentation they need. It’s always good practice to consult with your lender and find out exactly what they need from you.
What if you haven't been self-employed for that long?
Lenders typically prefer applicants to have at least two years of uninterrupted self-employment income. This helps establish some financial patterns they can use to predict your likelihood of repaying them. However, some lenders may be willing to consider a shorter length of time, or account for other factors such as income data prior to self-employment.
How to qualify for a mortgage when you’re self-employed?
Qualifying for a mortgage, regardless of how you’re employed, is largely a matter of reassuring lenders. They'd like to see that you’ll be able to repay your loan in a timely manner without putting undue stress on your personal finances. Proof of income is obviously a significant component. That said, other factors like your credit score, your debt-to-income ratio and your available cash reserves can also go a long way toward helping you qualify for a mortgage as a self-employed individual.
So, what documents do you need for a mortgage if you’re self-employed? For the most part, you’ll need a lot of the same things a W2 company employee would need: ID, proof of employment and proof of income. However, since self-employed income can be subject to a lot of fluctuation and these individuals don’t always have employer pay stubs to submit, lenders may require some additional paperwork like business tax returns or client letters to demonstrate that your finances can handle a loan.