Questions for The Self-Employed Borrower
Being self-employed doesn't mean getting a mortgage has to be difficult. But it does mean your lender needs to ask the right questions.
If you own a business, work as an independent contractor, or receive 1099 income, your mortgage qualification may look very different from someone receiving a regular paycheck.
And here's something I believe strongly: Before a mortgage lender asks for permission to pull your credit, they should spend some time understanding how you earn your money.
Why? Because a great credit score doesn't tell me how your business operates, how your income is reported, or which mortgage programs might work best for you.
A borrower with a 780 credit score can still run into qualification challenges. Meanwhile, someone with complicated tax returns or a short self-employment history may have financing options they never knew existed.
It starts with a conversation.
First, let's talk about your goals.
Before diving into your business, I want to understand what you're trying to accomplish.
How much are you hoping to spend on a home?
What's your down payment goal? Are you hoping for the minimum down payment, or could you put 10%, 20%, or more down if needed?
Do you have additional savings or reserves beyond your down payment?
Are you buying a primary residence, second home, or investment property?
Why this matters: Different mortgage programs have different down payment, income documentation, and reserve requirements. A borrower with 20% down may have options that aren't available to someone putting 3% down.
That doesn't mean you need 20%. It means I need to know what's possible before deciding which direction to explore.
Next, let's understand your business.
These are examples of questions I might ask:
How long has your business officially existed?
What percentage of the company do you own?
How long have you been self-employed? If less than two years, were you previously working in the same industry?
Compared to last year, is your business performing better, worse, or about the same?
How is your business structured? Sole proprietor, independent contractor, partnership, S corporation, or C corporation?
Is your business organized as an LLC?
Have you changed your business structure within the past two years?
Do you own other businesses or have additional sources of income?
Important: If you own multiple businesses, these questions generally need to be addressed for each business individually.
Why this matters: Lenders don't necessarily calculate income the same way for every business owner.
A sole proprietor reporting income on Schedule C is evaluated differently from an S corporation owner receiving W-2 wages and distributions.
Even changing from a sole proprietorship to an S corporation can affect the documentation needed to establish your business and income history.
And while two years of self-employment is a common benchmark for traditional mortgages, shorter histories can sometimes qualify under specific circumstances.
Now, let's talk about taxes and financial records.
This is where some of the most important questions come into play.
Do you use a professional tax preparer?
Are all your required tax returns filed and current?
Are you on an extension for your most recent return? If so, have you paid any estimated taxes due?
Do you owe the IRS any outstanding taxes?
If you're on an IRS payment plan, are your payments current? How long have you been making them?
How do you track business income and expenses? QuickBooks, bookkeeping software, spreadsheets, or something else?
Could you provide a year-to-date profit and loss statement and balance sheet if needed?
Approximately how much does your business generate in revenue, and how much does it retain after expenses?
Why this matters: Your business revenue isn't necessarily your qualifying mortgage income.
You might generate $300,000 annually but report considerably less taxable income after business deductions.
Traditional mortgages often rely heavily on tax returns, while certain alternative mortgage programs may evaluate bank deposits, profit and loss statements, assets, or other qualifying documentation.
Outstanding taxes, extensions, and payment arrangements don't automatically mean you can't qualify. But they can affect which programs are available and what documentation is required.
Let's discuss your bank accounts and debts.
These questions can uncover opportunities and potential obstacles before we even review your credit.
Do you operate through a dedicated business bank account, or do you use a personal account?
Have you changed banks during the past 12 months?
Have your business accounts had any overdrafts or negative balances in the past year? If so, approximately how many?
Does your business pay any debts that also appear on your personal credit report, such as a vehicle loan or credit card?
If so, could you document 12 months of payments from your business account?
Would you need to use funds from a business account for your down payment or closing costs?
Are you involved in any pending lawsuits that could affect your finances or business?
Why this matters: Some loan programs allow certain debts paid by a business to be excluded from your personal debt-to-income ratio when specific requirements are met.
Business bank statements may also help establish income under certain alternative documentation programs. Overdraft history, deposit consistency, and account ownership can all become important.
And using business funds for a down payment may require additional analysis to ensure withdrawing those funds won't negatively affect the business.
These are things worth discovering early, not two weeks before closing.
So why ask all of this BEFORE checking your credit?
Because your credit score is only one piece of the puzzle.
I can pull a credit report and discover you have excellent credit. But that alone doesn't tell me whether a conventional mortgage, FHA loan, bank statement mortgage, profit and loss loan, or another financing option is most appropriate.
A thorough conversation helps me:
Identify potential financing options based on your circumstances.
Recognize documentation challenges before they become underwriting problems.
Determine whether we should explore traditional or alternative income qualification.
Help you understand what might need to change before you're ready to purchase.
Avoid unnecessary credit inquiries when we're still figuring out whether a viable financing path exists.
To be clear, a credit check is an important part of obtaining mortgage approval, and a hard inquiry may have a small impact on your score. I'm not suggesting we can skip it.
I'm suggesting we should have a meaningful conversation first.
The bottom line
Being self-employed isn't the problem. Not understanding how your self-employment fits into mortgage guidelines can be.
I've spent more than 20 years helping people navigate mortgage financing, and some of the most rewarding loans I've worked on were ones that initially appeared complicated.
Sometimes the solution is a different mortgage program. Sometimes it's additional documentation. And sometimes the smartest thing we can do is put together a plan so you're better positioned to buy six months or a year from now.
You don't need to know which mortgage program you qualify for before calling me.
That's my job to figure out.
If you're self-employed and thinking about purchasing or refinancing a home, I'd love to hear about your business and what you're trying to accomplish.
Sonya Bersani | Legend Lending
NMLS #140571
Mortgage programs, qualification requirements, and documentation vary by lender, investor, and individual circumstances. An initial discussion does not constitute mortgage approval.
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