Getting Home Loans When Self-Employed

Discover how the mortgage process can be different when you are self-employed

When you apply for a mortgage, you need to show proof of a steady income and a solid credit score in order be approved for a low mortgage rate. If you are trying to get a loan when self-employed, it can be difficult to prove you have the income required to make consistent, timely mortgage payments, making you a more risky investment for the bank. However, there are several things you can do to improve your chances of a loan approval when self-employed.

Create a case for your ability to repay with thorough documentation

Since you don't have a W-2, most banks will ask to see the following information in order to get a sense of your ability to make a down payment and subsequent monthly mortgage payments.

  • Your current business license
  • A statement outlining your financial affairs signed by your accountant
  • Profit and loss statements
  • Balance sheets
  • How long your business has been established. Unless you have at least two years under your belt, it may be wise to wait to apply.
  • Your taxes from the previous year. If you deduct business expenses annually for tax purposes, your taxable income may appear to be very low, which means you may need to show an alternative source of funds for home loan payments. You could also choose to defer or refrain from deducting these expenses if you are planning to apply.
  • Salary information. It's important to show financial stability, so your ability to qualify depends upon your income for the past two years. If there was significant salary fluctuation year over year, or you have not been established long enough, you will have trouble qualifying for good mortgage rates.

Build up a strong savings portfolio

If you have low taxable income, you will need to provide proof of an alternative source of payment. A substantial savings portfolio will present you as less of a risk since there is proof you can repay even if you have a rough year. It is important that the balance in these accounts be at least six months old, documenting your financial stability. Make large deposits too close to the date you apply for a home loan, and it will look like you are simply padding the accounts for approval.

Maintain a strong credit score

When you're trying to get a loan when self-employed, having a strong credit score is a key factor. Make every effort to boost or repair your credit score before applying for a mortgage. These tips can help:

  • Make consistent, timely payments on business loans, car payments, student loans or other debt.
  • Pay down high-interest credit cards, and avoid store cards.
  • Make credit card payments in-full each month, not just the minimum payment.
  • Show an established track record with your business as well as personal credit purchases.

Consider a joint mortgage or adding a co-signer

Even with proof of income and good credit, you may not qualify for your ideal mortgage rates. Applying for a joint mortgage with a spouse who has a steady income from an established employer may help you receive better mortgages rates as his or her income is easier to confirm. If you are not comfortable with the joint mortgage option, simply adding a co-signer can improve your probability of receiving a loan when self-employed or qualifying for a better interest rate.

Apply for a home loan in person at a Citizens Bank branch

Applying for home loans can feel complicated, especially if you're trying to get a loan when self-employed. Come in and speak to a lender at a Citizens Bank branch for hands-on, customized service. Our lenders can help assess your risk level and ask questions that will create a mortgage solution unique to your situation. Bring in all your documentation, and sit down with your local lender for more information on the home loan process and mortgage rates.


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