Here’s What Happens When You Apply for a Mortgage and You’re Self-Employed

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It’s by no means impossible to get a mortgage when you’re self-employed, but it can be harder than if you’re a salaried employee. Read on to learn more. [[{“value”:”

In February, the median existing home sale price was $384,500, according to the National Association of Realtors. If you’re buying a home in that price range, you probably need to finance it with a mortgage — unless, of course, you happen to just have around $400,000 sitting in your bank account waiting to be spent.

To qualify for a mortgage, you generally need to meet a few criteria. You typically need to have a decent credit score (for a conventional mortgage, the minimum score is 620), a reasonable debt-to-income ratio, and proof of income.

But the latter can be a harder requirement to satisfy when you’re self-employed. So it’s important to be prepared for a slightly more complicated road to mortgage approval if you’re not someone on salary who brings home the same paycheck month after month.

When you’re someone whose income fluctuates

Every time a mortgage lender gives out a loan, it runs the risk of losing money by not getting repaid. (And in case you were wondering, lenders don’t take much comfort in foreclosure as their fallback option, as it’s a complicated process for them to navigate.) As such, lenders tend to do a pretty thorough job of vetting applicants’ finances before writing these large loans.

You can bet on your mortgage lender checking your credit score, reviewing your existing debts, and generally examining your credit report as part of the application process. But you should also expect to have to take extra steps to show proof of income.

For salaried workers, providing proof of income often means showing a few recent pay stubs. You may also need to provide a recent W-2.

When you’re self-employed, you often do not make the same amount of money each month. So your lender needs to get a general sense of what your income looks like.

To that end, expect to have to provide tax returns from the past two years. If you own a business, you should expect to submit a copy of your personal tax returns as well as your business returns.

You may also need to provide added proof of income, such as:

A list of current clients you work withProof of a current professional licenseBank statements from the past two years

How to increase your chances of getting approved for a mortgage when you’re self-employed

Plenty of mortgage lenders write loans to freelance employees. But if you want to increase your chances of success, it’s worth taking these steps:

Boost your credit score, whether by paying bills on time or checking your credit report for errors and correcting themLower your debt-to-income ratio by paying off an existing installment loan or credit card balanceProvide your mortgage lender with copies of existing contracts with clients that show you’ve got work lined up for the foreseeable futureShop around with different lenders, which could also help you snag the best mortgage rate possible

When you’re self-employed, you generally need to jump through some extra hoops to prove that you’re capable of paying your loan back. But if you’re willing to make that effort, you may find that getting a mortgage isn’t as hard as you think.

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