Click to navigate:
- Are You Self-Employed?
- What Makes a Self-Employed Mortgage Application Different?
- How to Prove Income When You’re Self-Employed
- The Bottom Line
Are You Self-Employed?
Common self-employed and nontraditional income profiles may include:
- Sole proprietors who report income and expenses on Schedule C
- Independent contractors who receive 1099 income
- LLC members who receive business profits or distributions
- S corporation owners who may receive W-2 wages plus K-1 income
- Partnership owners who receive K-1 income
- Freelancers and consultants with project-based revenue
- Real estate agents and brokers with commission income
- Medical, legal and professional service providers who own their private practice
- Digital creators and influencers with sponsorship, advertising or affiliate income
- Gig economy workers with app-based or platform-based income
When determining whether you're self-employed, lenders will look at how you earn your income and your relationship to the business. They’ll also review whether your income is consistent, verifiable and expected to continue.
What Makes a Self-Employed Mortgage Application Different?
For a salaried borrower, gross income is often easy to identify because an employer pays a fixed amount on a predictable schedule. The lender can usually rely on pay stubs, W-2 forms, and employer verification to confirm income.
If you’re self-employed, a lender may need to review more than just your income. They may want to see additional documents, such as your tax returns and business income and expenses. That way they’ll have a clearer picture of how much your income will be and how much will be available for your mortgage payment.
How to Prove Income When You’re Self-Employed
Ideally, you’ll want to have all your documents gathered by the time you begin your mortgage application so you can quickly provide any requested information.
1. Organize Tax Returns and Business Records
Make sure tax returns are filed, signed and consistent with business records. Missing, incomplete, or inconsistent income documentation might slow down your application.
2. Separate Business and Personal Finances
Separate bank accounts make income easier to document. When business and personal funds are mixed, the lender may need more explanations and may have a harder time distinguishing between revenue, transfers, expenses and personal deposits.
3. Review Deductions Before Filing Taxes
Business deductions that lower your net income can also lower the income a lender is able to use to qualify you. A Newrez loan expert can walk you through how self-employed income is calculated. For questions specific to your tax situation, consult a tax professional.
4. Avoid Major Business Changes Before Applying
Changing your business structure, adding partners, switching entities, taking on new business debt or materially changing income streams before applying may mean your lender needs to do additional review. If a change is necessary, you should document it clearly.
5. Prepare Explanations for Income Fluctuations
You may want to provide short explanations to help clarify unusual income patterns. If income declined due to a one-time expansion expense, temporary disruption, seasonality or a large nonrecurring cost, be ready to support that explanation with documentation.
The Bottom Line
You may count as self-employed for mortgage purposes even if you do not think of yourself that way. If your income comes from work you own, operate or manage independently, a lender may need more documentation to understand how you earn and report that income.
If you have questions about how your income could affect your mortgage application, a Newrez loan expert can help.
