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

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Qualifying for a mortgage can be harder when you’re not a salaried worker. Read on to see why. 

There are many benefits to being self-employed. Not only can you commonly set your own hours and enjoy a nice work-life balance, but you also might, in some cases, have an opportunity to boost your income by commanding a higher rate than what you’d get as a salaried worker.

But being self-employed can be a challenge when the time comes to apply for a mortgage. One big factor mortgage lenders look at when approving loan candidates is income. Not only do they want you to have an income to begin with, but they want to be reassured that your income is ongoing and stable. That can be difficult when you work for yourself and the amount of money you earn varies from one month to the next.

The good news, though, is that self-employed people get mortgages all the time. You may need to provide more documentation than someone who’s a salaried employee, but ultimately, if you earn enough money to support the loan amount you’re asking for, your chances of getting approved are pretty strong. This especially holds true if you also happen to have a great credit score.

Qualifying for a mortgage as a self-employed worker

When you work for an employer, it’s common for a mortgage lender to not only ask to see copies of recent pay stubs, but also, to get a letter from your company verifying your employment and standing at work. When you work for yourself, there’s no one to provide that same sort of letter.

What you’ll commonly have to do instead is provide proof that you’ve been earning a steady income and have the potential to keep doing so. That should give your lender reassurance that you’ll be able to repay your mortgage.

Now one thing you should know is that if you recently became self-employed, you may have a hard time getting your mortgage application approved. Rocket Mortgage says you’ll generally need a history of self-employment income for two years to qualify for a home loan as a non-salaried worker. However, there are exceptions.

But let’s say you’ve been self-employed for two years or longer. At that point, you’ll need to provide proof of your income — not just that you earn money now, but are likely to continue doing so. To that end, prepare to provide your mortgage lender with documentation such as:

Recent tax returnsBank statementsCopies of contracts you have with clients showing that you’re likely to have work coming in

The latter isn’t necessarily something every self-employed person has. But it could go a long way toward helping you qualify for a mortgage. If you don’t have contracts for ongoing work, you can instead try showing your mortgage lender that you have a history of working for the same clients consistently over the past few years.

You can still get a mortgage if you’re self-employed

Just because you’re self-employed doesn’t mean you don’t have a steady, reliable income, and a high enough one to support the loan amount you’re seeking out. So don’t assume you’re doomed to be denied a mortgage because you’re not on an employer’s payroll. Just be prepared to provide extra paperwork and go the extra mile to reassure your lender that you’re capable of repaying a home loan over time.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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