How Self-Employment Income Impacts the Home Loan Approval Process

If you drive for Uber, work as a freelance author or run a daycare business out of your home, you are likely self-employed. While self-employment income can be used to obtain a mortgage, lenders may want more information about how it was earned and the odds that you will continue to earn in the future.

how to buy a home if you're self employed

How to Buy a Home If You Are Self Employed

Lenders May Average Your Income

In many cases, lenders will average your self-employment income over the past two years to reach a qualifying figure. However, lenders do have the right to give more weight to one year over the other based on how you obtained it. For instance, if you were given a $10,000 bonus by a client, some or all of it may be disregarded when evaluating a mortgage application. This is because there is no guarantee that the client will offer such bonuses in the future.

You May Qualify for a Lower Loan Amount

If you rely solely on self-employment income, a lender may choose to reduce the amount of money that you qualify to borrow. It may also be necessary to make a larger down payment or agree to other terms. Ideally, those who work for themselves will use mortgage brokers in Las Vegas as they can look through dozens of mortgage products to find one that has the most favorable terms. (Learn about these advantages of a fixed mortgage here.)

Think About Incorporating Your Company

When you incorporate, you provide yourself with a W-2 that lists the wages and bonuses earned by working for your company. Lenders will treat this income the same as any other wages earned in a given year or previous years even though you run the company that employs you. Any owner distributions may also be considered when determining your income for the purposes of approving a home loan.