Self-employed? Four ways to qualify for a mortgage when your tax returns look thin

Business owners hear the same thing all the time: “Your income is too low.” Often it isn’t. Good tax planning lowers your taxable income, and traditional mortgages are based on taxable income. Here are four ways around that.

1. Start with your tax returns anyway

It’s worth checking first, because it’s usually the lowest-cost option. Lenders typically average two years of returns and can add back certain non-cash deductions like depreciation. Your qualifying income may be higher than the bottom line suggests.

2. Bank statement loans

When returns don’t show enough, a bank statement loan calculates income from your deposits instead. You provide 12 or 24 months of personal or business statements. The lender totals qualifying deposits, applies an expense factor for business accounts, and averages the result.

These are non-QM loans, meaning they sit outside Fannie Mae and Freddie Mac guidelines. They open the door for good borrowers who would otherwise be told no, and because guidelines and pricing vary a lot by lender, Pete compares them side by side.

3. 1099 or profit-and-loss loans

If you’re paid on 1099s, some lenders will qualify you from the 1099s alone. Others accept a profit-and-loss statement prepared by a CPA or tax preparer. Both cut down the paperwork.

4. Asset-based qualifying

If you have significant savings or investments, some lenders can qualify you based on those assets instead of income. It’s common with retirees and business owners between ventures.

A buy-now, refinance-later strategy

Many self-employed buyers use a bank statement loan to buy now, then refinance into a conventional loan once their returns support it. It’s a practical way to stop waiting.

What to gather

• 12 to 24 months of bank statements, all pages
• Proof of business ownership, like a business license or CPA letter
• Two years of tax returns, so Pete can compare options
• A list of your debts and assets

As a broker, Pete compares these programs across more than 150 lenders. See self-employed loans or book a free call.