I’m Self-Employed. Can I Still Get a Mortgage?

The American entrepreneurial spirit is alive and well, as witnessed by the fact that about 30 percent of U.S. jobs are held by self-employed persons and the workers they hire. That turns out to be more than 29 million of you who are willing to take the risk of working without a corporate safety net. It would be nothing less than a denial of the American dream if the self-employed were barred from buying their own home.

Relax. The self-employed can indeed get a mortgage, although it requires a little more paperwork. But that extra red tape is probably less than you think, especially since the Federal National Mortgage Association (affectionately known as Fannie Mae) loosened the requirements for self-employed mortgages in August 2015.

Fannie Mae Loans

Who exactly is Fannie Mae? She’s a government-sponsored enterprise (GSE), that buys up mortgages, pools together and sells bonds backed by the pools. Many lenders use Fannie Mae to offload the risk of holding onto a mortgage. In other words, when Fannie makes it easier for the self-employed to get a mortgage, lenders are more willing to provide mortgages to the self-employed. Makes sense, right?

Well, what did Fannie do last August? It reduced the documentation requirements for three groups of borrowers:

1. Self-employed borrowers with less than two years of federal tax returns. Now, if you have only the latest year’s tax return, you can supplement it with a monthly income statement that shows your cash flows for at least the last 12 months
2. Self-employed small business owners who take little or no money out of their businesses. You’ll need to show you have access to your business income, via a K-1 filing or letter of incorporation. As above, you’ll need to show adequate cash flows to make your mortgage payments.
3. Salaried borrowers who also work at a self-employed second job. You’ll no longer have to provide proof of income from your self-employed job, i.e. you don’t have to cough up your tax returns as it relates to your non-salaried income.

The bottom line is that self-employed persons have a fairly straightforward path to securing a mortgage – if you have adequate income, you should do just fine.

Loanatik uses advanced systems to gather the information needed to quickly approve a loan to the self-employed. The more data we collect online, the less hassles you’ll have to deal with. We can prepare various documents, such as a cash flow analysis and written evaluation of your income (personal and business), required by Fannie Mae. The point is, we can gather information quickly, save you work and get you a fast approval.

FHA-Insured Loans

What if you want an FHA-insured loan? If you’re worried that these aren’t available to the self-employed, well turn that frown upside down. FHA-insured loans are wonderful products, because they feature low interest rates and down-payment requirements. Many lenders, including Loanatik, offer FHA-insured loans, so when the FHA loosens the approval requirements for the self-employed borrowers, the effect ripples through the entire market.

FHA-insured mortgages to the self-employed used to require two years of tax returns. But now, you can be approved with as little as one-year’s tax return as a self-employed person, as long as your previous work experience, salaried or self-employed, goes back at least two years in a related occupation. You’ll also want to prove that your income from self-employment hasn’t declined by more than 20 percent over the last couple of years. Such a decline doesn’t automatically disqualify you, but it does make it harder to get a mortgage.

It’s not surprising that you’ll need to produce certain documents to qualify for an FHA loan, including tax returns, profit & loss statements, maybe even a balance sheet (but not if you are filing Schedule C income). However, you don’t have to produce a business tax return if:

• your individual return shows that your self-employment income rose over the past 2 years,
• the mortgage-closing money doesn’t stem from a business account, and
• the FHA loan is not for a cash-out refinance.

The good news is that Loanatik can obtain the necessary tax information without signed tax returns. You see, there are several IRS forms, such as online copies of your tax return or tax transcript, that provide the necessary information. The result: less red tape for you and a quicker decision by Loanatik.

Two things to remember:

1. Conversion from W2 to 1099 makes you self-employed, even if it’s for the same firm.
2. Even if Fannie denies your loan, Loanatik can still underwrite the mortgage and get you a great rate.

Corey Schwartz, our CEO and founder, is an entrepreneur who is constantly finding better ways to provide mortgages for everyone, especially the self-employed and fellow entrepreneurs. Don’t wait – apply today for a Loanatik mortgage and be prepared for how easy we make the process.