Owning a home is a dream for many of us, and so is owning a business. Gig worker, freelancer, independent contractor, small business owner — if you’re self-employed and thinking about buying a home, a quick Google search can make it feel daunting, if not out of reach. Take a breath.
Yes, it’s true: Being self-employed can mean a few extra steps along the way. But don’t stress. You can get a mortgage when you work for yourself, and we’ve done some of the homework to help make the process easier to understand.
Why can it be harder to buy a home when you’re self-employed?
Can’t pay for a house in cash? You’re not alone! Most buyers need a mortgage. There are three main reasons why securing a mortgage can be more difficult when you own your own business:
- Mortgage lenders like to see steady, predictable income. Traditional employees can show this easily with a W-2, which clearly documents wages paid by an employer. Most self-employed borrowers, however, rely on 1099s or a Schedule C, which can take a little more explanation.
- Many self-employed people use business deductions to lower their tax bills. While that’s smart at tax time, it can make your income look lower on paper, raising questions about your ability to manage monthly mortgage payments.
- Paperwork can be a hurdle. Some lenders shy away from the extra documentation self-employed borrowers require — but extra paperwork doesn’t faze Fremont Bank.
How can I increase my chances of getting a mortgage when I’m self-employed?
You don’t have to run out and get a new cubicle job! Here are six to-dos to get you ready for a mortgage loan as a business owner.
- Get your paperwork in order, including:
- At least two years of personal and business tax returns
- Proof of status as a business owner or self-employed individual, including business licenses and insurance, client letters, contracts showing upcoming work or a list of unpaid accounts receivable, and a statement from your accountant
- Current-year profit and loss statement
- Document assets like savings or investment accounts or additional sources of income, such as alimony or Social Security
- Gather proof of current rent or mortgage payments.
- Document any cash reserve in an emergency fund to:
- Show you can make mortgage payments in the event of a decline in business
- Ensure you have funds to pay property taxes, insurance, or repairs
- Maintain your excellent credit by:
- Paying bills on time
- Checking for reporting errors
- Paying down credit cards
- Trying not to use more than 30% of the limit on any credit card
- Increasing your limit strategically and when appropriate
- Dealing with any collection accounts as needed
- Adding rent and utility reporting when available
- Save for a larger down payment and focus your search on the lower end of what a mortgage calculator says you can afford. A lower loan-to-value (LTV) ratio, which measures your mortgage against the appraised value of a property, can improve your approval chances. A larger down payment or a smaller loan amount improves your LTV.
- Pay down other existing consumer debt.
What common types of mortgages are available to business owners?
There are three types of mortgages that can work for many self-employed people.
- Adjustable-rate mortgages (ARMs) have variable interest rates that increase or decrease at set intervals after an initial period with a fixed rate.
- A fixed-rate mortgage carries a consistent interest rate for the loan term, usually 15, 20, or 30 years.
- Federal Housing Administration (FHA) loans are insured by the FHA. Adjustable- and fixed-rate options are available.
Conventional loans are available with a range of terms that may work for a borrower but can require stricter documentation than FHA loans.
FHA loans require a lower minimum down payment and have lower credit qualifications, so they’re popular for first-time homebuyers and the self-employed, but that flexibility comes with high up-front and annual costs in the form of mortgage insurance premiums.
If you don’t think you’ll qualify for a mortgage on your own, a joint mortgage or a co-signer could create more options.
What other options does a business owner have for a home loan?
We’re glad you asked!
Portfolio loans were created for folks with unique circumstances — like self-employment. A portfolio loan is one kept in a lender’s portfolio, which means it can be underwritten to our internal guidelines. Your income and assets can be evaluated more holistically, and that means maximum flexibility and the potential to tailor both the loan and the loan terms to your needs. Due to their flexibility, portfolio products can come with slightly higher interest rates and a higher down payment requirement.
This relationship-based lending is just another way we can help you get to yes while offering access to decision-makers with deep knowledge of the local market.
Learn more about our Portfolio products, including Portfolio Adjustable Rate Mortgages (ARMs).
How do I find a home loan lender when I’m self-employed?
It’s smart to begin with a lender who knows how to guide self-employed borrowers through the underwriting process. It also helps to work with someone experienced in supporting first-time homebuyers. Luckily, you’re already in the right place.
Fremont Bank brings extensive experience with both first-time and self-employed buyers, strong insight into local market dynamics, and the flexibility to offer smoother approvals and faster closings. Plus, the level of personal service truly sets it apart.
One last reminder: A preapproval letter helps clarify how much you may be able to borrow and gives visibility into costs like closing fees, points, and other expenses that can quietly add up. A low rate may look great up front; just make sure high closing costs don’t steal the spotlight.
Want to talk to a local lender to understand local market conditions? We’re ready!
Does Fremont Bank offer mortgages to self-employed individuals?
Proudly! We are, after all, a small, family-owned business ourselves. Many small business owners and self-employed individuals choose to bank with us for their personal and business banking needs.
We know how vital home-ownership can be for some and that it can be more challenging for self-employed people. That’s why we created our straightforward Mortgages Without the MysterySM loan process to help you understand the many mortgage choices available from Fremont Bank.
We want to make those home-owning dreams a reality for business owners. Let’s talk.
