Buying a home is a dream that may feel out of reach if your income fluctuates dramatically or is greatly affected by seasonality. You may assume you won’t be able to qualify for a mortgage without the traditional income verification most lenders require, but we have some great news. Fluctuating income, seasonal earnings, and tax deductions can make it harder to prove your ability to repay a loan—even if you’re financially stable. However, there are special mortgage options designed for self-employed borrowers, and working with an experienced lender can make all the difference.
When you work with a lender who understands fluctuating income and self-employed borrowers, like we do, you’ll quickly find that there are actually many options available to you.
Why Traditional Mortgage Qualification is Tough for Self-Employed Borrowers
If you’ve applied for a mortgage and been denied, you already understand this challenge. If not, let’s break it down.
Lenders want to see consistent, verifiable income to approve a mortgage when a homeowner hopeful tried to qualify for a mortgage. For W-2 employees, this usually means providing recent pay stubs and W-2s. However, self-employed borrowers usually don’t have a W-2 that fully represents their income, either because they don’t have a W-2 at all or because a large portion of their income is not reflected on it. Instead, they must rely on a combination of tax returns, profit and loss statements, and bank statements, which can complicate the process.
These are some of the common pain points we see inforour self-employed clients:
- Fluctuating income – Seasonal or inconsistent earnings can make it harder to meet standard debt-to-income (DTI) requirements.
- Tax deductions lowering income – Many business owners take deductions to reduce their taxable income, but this also reduces the income lenders consider for mortgage qualification.
- Strict documentation requirements – Traditional loans require at least two years of tax returns, which may not reflect your true earning potential.
How to Qualify for a Mortgage as a Self-Employed Borrowers
Good news: it’s probably not your income that needs to change, but the type of mortgage you are pursuing. If you don’t qualify for conventional mortgages, consider one of these options that are created with people like you in mind.
Bank Statement Loans
A bank statement mortgage allows self-employed borrowers to qualify for a mortgage based on their personal or business bank deposits rather than tax returns. Instead of W-2s and tax returns, we will review 12 to 24 months of bank statements to determine your averaged income. This is particularly helpful if you have far more income than is reflected on your W-2 because of deductions or investments. The process avoids the impact of tax write-offs, making it easier to qualify.
Stated Income Loans
For those with high cash flow but complicated finances, we offer stated income loans where income is verified in alternative ways (like a CPA letter or bank statements). Instead of tax returns, we evaluate your business revenue, assets, or industry standards to estimate income. High-net-worth individuals, real estate investors, or those with complex financial structures often find this to be a great fit to qualify for a mortgage.
Self-employed borrowers can absolutely qualify for a mortgage—it just requires the right strategy and an experienced lender. Instead of assuming you won’t qualify, let’s talk about your options. Ready to learn more about applying for a mortgage? We’re here to help you find the financing you need to reach your goals, so contact us any time.
