How to Buy a House When You’re Self-Employed

Published On: May 10, 2025|Categories: Real Estate|

Buying a home as a self-employed person comes with a few extra hurdles, but it’s absolutely possible with the right preparation. Whether you’re running your own business in Jasper, freelancing in Evansville, or working for yourself anywhere in Dubois County, lenders just need to see that your income is stable and verifiable.

This guide explains the following:

What lenders look for when you’re self-employed
Documents you’ll need to prove income
Tips to strengthen your mortgage application
Loan programs that may work for you
Common mistakes self-employed buyers make

Here’s a closer look at each.

What Lenders Look For When You’re Self-Employed

If you’re not a W-2 employee, lenders will evaluate your financial stability a little differently. They want to know:

How long you’ve been self-employed
Whether your income is stable or increasing
If your debts are manageable compared to your income
Whether your business is healthy enough to support your mortgage

Most lenders prefer to see at least two years of self-employment history in the same field, but some may accept less if you can show consistent income and prior experience in a similar job.

Documents You’ll Need to Prove Income

Self-employed buyers need to show that their income is both stable and sufficient to repay a loan. Expect to gather the following:

Federal tax returns (typically the last two years—personal and business)
Lenders use your tax returns to determine your average income over time. They’ll look at your adjusted gross income (AGI) after deductions, not just your gross business revenue. Both your individual and business tax filings are typically required.

Profit and loss (P&L) statements
This document shows how much your business earns and spends over a certain period. It gives lenders a snapshot of your business’s financial health. Some lenders may require a year-to-date P&L to compare with past returns, especially if you’re applying later in the year.

Bank statements (personal and business)
These help confirm the income you report on your tax returns and P&L statement. Lenders will look for consistent deposits and healthy balances, and they may want to see both business and personal accounts to verify your cash flow.

Year-to-date financials
If the current year is stronger than last year’s tax return shows, year-to-date financials can help demonstrate that your income is increasing. This is especially useful if you’re applying for a loan before you’ve filed your most recent return.

Proof of business ownership
This could be a business license, a professional license, articles of incorporation, or a statement from a CPA. It confirms that you own and operate your business and have legal authority over its finances.

CPA letter (if required)
Some lenders may want a letter from a certified public accountant confirming the nature of your business, how long it’s been in operation, and that your income is reliable. Not all lenders require this, but it can be helpful in borderline cases.

Tips To Strengthen Your Mortgage Application

The more solid your financial picture, the easier it is to get approved. Here are a few ways to improve your chances:

Separate personal and business finances
If your business and personal funds are mixed in one account, it creates confusion for lenders. Keeping them separate makes your income easier to verify and helps avoid delays.

Limit your deductions
Large write-offs might reduce your tax bill, but they also lower your reported income—something lenders rely on when calculating how much house you can afford. If your deductions make your income look too low, it may hurt your approval chances.

Lower your debt-to-income ratio
Pay down credit cards or other loans before applying. Lenders prefer your total debt payments (including your future mortgage) to be no more than about 43% of your monthly income.

Boost your credit score
A strong credit score can help offset other concerns about variable income. Paying bills on time and reducing revolving debt can help raise your score in the months leading up to your application.

Save for a larger down payment
Putting down more money reduces the lender’s risk and could help you qualify more easily—even if your income fluctuates. It may also lower your monthly payment and remove the need for mortgage insurance.

A REALTOR® familiar with self-employed buyers can help guide you toward lenders who understand the nuances of freelance and small business income, especially in places like Huntingburg or Ferdinand, where independent work is common.

Loan Programs That May Work For You

There’s no one-size-fits-all loan, but some programs are better suited to self-employed borrowers than others:

Conventional loans
If you’ve been self-employed for at least two years and your income is consistent, you may qualify for a conventional loan with a competitive interest rate. You’ll need to show solid credit and documentation.

FHA loans
These loans are backed by the Federal Housing Administration and offer more flexibility with credit and down payments. You’ll still need to prove income through tax returns, but FHA loans can be a good option if your credit isn’t perfect.

Bank statement loans
These use your business or personal bank deposits to estimate income instead of tax returns. Not all lenders offer these, and they often come with higher interest rates, but they can work well for buyers who write off a lot of business expenses.

Non-QM (non-qualified mortgage) loans
These loans are designed for buyers who don’t meet traditional loan requirements. They’re more flexible with documentation but often require a larger down payment and come with higher rates.

To explore your options and see if you qualify for state-level assistance or financing support, you can also check housing tools available on IN.gov.

Common Mistakes Self-Employed Buyers Make

Self-employed buyers can absolutely get approved for a mortgage—but there are some pitfalls to avoid along the way:

Mixing business and personal finances
This makes it harder to prove what your income actually is. Always keep your records clean and separate.

Claiming too many deductions
Yes, deductions save money on taxes—but they also make your income look smaller on paper. That lower number is what lenders use to calculate what you can afford.

Waiting too long to talk to a lender
Start the mortgage conversation early—even if you’re not buying for six months. A lender can help you prepare, clean up your finances, and avoid surprises later.

Taking on new debt during the mortgage process
Don’t finance a car or open a new credit card while your mortgage is in progress. Any change to your credit or debt load can affect your approval.

Not having a paper trail for large deposits
If you move money between accounts or get paid in irregular chunks, keep records of where the money came from. Lenders will ask.

FAQ About Buying a Home When You’re Self-Employed

Check out these commonly asked questions about buying a home while self-employed. If you don’t see your question here, please call our office and we’ll find you the answers you need.

Can I Buy A Home If I’ve Been Self-Employed For Less Than Two Years?

It depends. Some lenders may accept one year of self-employment if you worked in the same field before and your income is stable or increasing. Talk to a lender to see if you qualify.

What Do Lenders Consider Proof Of Income?

Lenders use tax returns, bank statements, profit and loss statements, and sometimes letters from your CPA to confirm your income. You’ll usually need to provide two years of documentation.

What Happens If I Don’t Show Much Income On My Taxes?

If your taxable income is low due to deductions, lenders may offer a lower loan amount—or decline your application. You might need to look at alternative loan programs like bank statement loans.

Are There Special Mortgage Programs For Self-Employed Buyers?

There are no self-employed–only loan programs, but some loans—like FHA, bank statement loans, or non-QM mortgages—are more flexible for non-traditional income.

Can I Use A Co-Borrower To Strengthen My Application?

Yes. If your co-borrower has stable W-2 income, it can help you qualify for a better loan. Just make sure you’re both prepared for the financial responsibility.

Being self-employed doesn’t mean you can’t buy a home—it just means you need to plan ahead. With a trusted REALTOR and a lender who understands your situation, you can find the right loan and the right home. Whether you’re buying in Newburgh, Santa Claus, or anywhere in Dubois County, the key is preparation, documentation, and expert guidance every step of the way.

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