Self-Employed Mortgage Options: 7 Ways to Get Approved in 2025

The Self-Employed Mortgage Challenge

Getting a mortgage when you're self-employed can feel impossible. Traditional lenders want to see W-2 income, but as a business owner, your tax returns often show lower income due to legitimate business deductions.

The good news? There are now more options than ever for self-employed borrowers.

7 Mortgage Options for Self-Employed Borrowers

1. Bank Statement Loans

Best for: Business owners with strong deposits but low tax return income

Bank statement loans use 12-24 months of deposits to calculate income instead of tax returns. This is ideal if you write off significant expenses.

• Requirements:
• 2+ years self-employed
• 620+ credit score
• 10-20% down payment

2. 1099 Income Loans

Best for: Independent contractors and freelancers

If you receive 1099 income, some lenders can qualify you using just your 1099 forms instead of full tax returns.

• Requirements:
• 2 years of 1099 history
• Consistent income pattern
• 660+ credit score

3. Asset Depletion Loans

Best for: High-net-worth individuals with significant savings

Asset depletion loans calculate income by dividing your liquid assets by a set number of months (typically 360).

Example: $1,000,000 in assets ÷ 360 = $2,778/month qualifying income

4. Profit & Loss (P&L) Statement Loans

Best for: Business owners who can document current income

Some lenders accept CPA-prepared P&L statements showing current business income, even if tax returns show lower amounts.

5. Full Documentation Conventional Loans

Best for: Self-employed with strong tax return income

If your tax returns show sufficient income, you can still qualify for conventional loans with the best rates.

Tip: Work with a CPA to optimize your returns for mortgage qualification.

6. FHA Loans

Best for: First-time buyers with lower credit scores

FHA loans accept self-employed borrowers with 2 years of history and allow credit scores as low as 580.

7. Portfolio Loans

Best for: Complex situations that don't fit standard guidelines

Local banks and credit unions sometimes offer portfolio loans with flexible underwriting for self-employed borrowers.

How Lenders Calculate Self-Employed Income

Tax Return Method (Conventional)

Lenders average your last 2 years of tax returns:

1. Add Schedule C net profit (sole proprietor)
2. Add K-1 income (partnerships/S-corps)
3. Add back certain deductions (depreciation, one-time expenses)
4. Average over 24 months

Bank Statement Method (Non-QM)

1. Total all deposits over 12-24 months
2. Remove non-business deposits
3. Apply expense factor (10-50%)
4. Divide by number of months

Tips to Improve Your Approval Odds

1. Separate Business and Personal Finances

Keep dedicated business accounts to make income verification cleaner.

2. Maintain Consistent Deposits

Avoid large gaps in deposits. Lenders want to see steady income.

3. Work with a CPA

A good CPA can help you balance tax savings with mortgage qualification.

4. Build Your Credit

Higher credit scores mean more options and better rates.

5. Save for a Larger Down Payment

More equity reduces lender risk and improves approval chances.

6. Get Pre-Approved Early

Start the process 3-6 months before you need to buy to identify and address issues.

Common Mistakes to Avoid

• Filing taxes too aggressively right before applying
• Mixing personal and business deposits
• Not documenting large deposits
• Applying with multiple lenders (hurts credit)
• Waiting until the last minute to get pre-approved

Frequently Asked Questions

How long do I need to be self-employed?

Most lenders require 2 years of self-employment history. Some accept 1 year with prior industry experience.

Can I use business income if I'm a W-2 employee with a side business?

Yes, you can combine W-2 and self-employment income if you have 2+ years of history with the side business.

Do I need a business license?

Not always, but it helps. A CPA letter confirming your self-employment can substitute in many cases.

What if my income decreased last year?

Lenders typically use the lower of your two-year average or most recent year. Declining income can be a challenge.

Find Your Best Option

Every self-employed borrower's situation is unique. Use our matching tool to connect with lenders who specialize in your specific income type.