As the buying season approaches, many self-employed individuals are looking to purchase homes. However, the process can seem daunting compared to traditional W-2 employees. If you’re self-employed and wondering about your mortgage options, this guide is for you. Here are your three main options:

1. Conventional loan. If you’ve paid significant taxes, you might qualify for a conventional loan. These loans are backed by Freddie Mac and Fannie Mae and require thorough documentation, including your tax returns. This route is more straightforward if your financial records are robust and comprehensive.

2. Non-QM Loan. Non-QM (Non-Qualified Mortgage) loans are a fantastic option if your tax returns are not as strong. Instead of tax documents, lenders use your bank statements from the past 12-24 months to assess your income. This type of loan comes with a slightly higher interest rate but offers flexibility for self-employed individuals whose income might not fit the conventional mold.

“With proper preparation and guidance, you can navigate the mortgage process and secure the home you want.”

3. 1099 Loan. A 1099 loan is tailored for those who receive 1099 forms, such as real estate agents or individuals in seasonal sales like solar or pest control. With a 1099 loan, lenders can use up to 90% of your 1099 income, requiring just one year of documented 1099 income. This is advantageous compared to conventional loans, which typically require a two-year history. However, be prepared for a slightly higher interest rate.

4. FHA loans. Surprisingly enough, FHA loans are a great option if you’re self-employed. As long as you own at least 25% of your business, have a satisfactory debt-to-income ratio, and provide necessary documentation of your income, FHA loans are a simple and effective way to buy a home.

Key considerations to keep in mind

  • Down payment. Self-employed borrowers often need a larger down payment. Having 10-15% down can open up more mortgage options and make the approval process smoother.
  • Credit score. A good credit score enhances your chances of getting approved and may provide better interest rates. Ensure your credit is in good shape before applying.

I work with hundreds of self-employed people and I can get you multiple options for loans. Reach out to me by phone or email so we can dive into the details of your situation and secure the best loan for you. I can work with you and your CPA to create a solid financial plan, maximizing your chances of approval.