Mortgage Options for Self-Employed Borrowers
Buying a house when you are self-employed can be frustrating.
Honestly, one of the biggest issues self-employed borrowers run into is not that they do not make enough money. It is that their tax returns may not show enough income.
If you own a business, you probably write off a lot of expenses. That may help lower your taxable income, but it can also make it harder to qualify for a traditional mortgage.
So if you walked into a bank and got denied because of your tax returns, that does not always mean you cannot buy a house or refinance.
You may just need a different type of mortgage.
Bank Statement Loans
A bank statement loan may be a good option for self-employed borrowers who have strong deposits but do not show enough income on tax returns.
Instead of using traditional tax return income, some lenders may review 12 or 24 months of personal or business bank statements.
Now, don’t overcomplicate it. This does not mean every deposit counts as income. Lenders may apply an expense factor, review consistency, and look at the overall business activity.
But for the right borrower, this can be a strong option.
1099 Mortgage Loans
A 1099 mortgage loan may help borrowers who get paid as independent contractors.
This could be useful if you recently switched from being a W-2 employee to being paid on a 1099. Now your bank is saying you do not qualify the traditional way.
Depending on the lender and program, your 1099 income may be used without needing full tax returns. But the lender will still review your income history, documentation, credit, assets, and ability to repay.
Profit and Loss Statement Loans
A profit and loss statement loan, also called a P&L loan, may be another option for business owners.
This type of mortgage may allow the lender to review your business income using a profit and loss statement instead of relying only on tax returns.
In many cases, the P&L may need to be prepared or signed by a CPA, although some lenders may allow a borrower-prepared P&L depending on the program.
This can be helpful if your bank statements are inconsistent or if your business income is better explained through your financials.
DSCR Loans for Investors
A DSCR loan is different because it is mainly for investment properties.
Instead of qualifying based on personal income, the lender looks at the property’s rental income and whether it may support the mortgage payment.
This can be a great option for real estate investors, but it is not typically used for a primary residence.
Final Thoughts
If you are self-employed and your tax returns are stopping you from qualifying, you have options.
Bank statement loans, 1099 loans, P&L loans, and DSCR loans may help certain borrowers buy or refinance depending on the lender.
Just remember: these loans usually require a larger down payment, may have higher interest rates, and are subject to underwriting approval.