Qualifying and documentation
How do I get a mortgage when I'm self-employed?
Written for Shawn Way MortgageUpdated Sources checked
The short answer
Being self-employed doesn't automatically require a special mortgage. A conventional loan can use your documented business income from tax returns, usually two years of them. If write-offs make your taxable income look low, some non-QM programs calculate income from 12 or 24 months of bank statements instead, usually at a higher cost. Compare the income each approach supports and what it costs.
At a glance
| Tax-return approach (conventional) | Bank-statement approach (non-QM) | |
|---|---|---|
| Main records | Personal and business tax returns, schedules, business records | 12 or 24 months of personal or business bank statements |
| How income is figured | Taxable business income, with allowed add-backs, averaged | Eligible deposits minus an expense factor or documented expenses |
| Typical cost | Conventional pricing | Usually a higher rate and fees, and often a larger down payment |
| Fits when | Your returns show the income you need | Write-offs make taxable income much lower than cash flow |
Who counts as self-employed to a lender?
Under Fannie Mae's guidance, owning 25% or more of a business generally puts you in the self-employed category. The lender then evaluates the business, how stable the income is, and whether the business can support the personal mortgage payment.
Can a business owner use a conventional mortgage?
Yes, if you meet the requirements. Two years of returns are a common starting point, with specified exceptions; a shorter history needs a lender's actual guideline review. Income analysis looks at trends and sources, not just the bottom line of one return, so keep personal income, business revenue and business cash distinct.
What is different about a bank-statement loan?
A bank-statement program uses your deposit history in place of tax returns to estimate qualifying income. The lender still separates business receipts from transfers and applies expenses, either a set expense factor or your documented expenses. Requirements vary by lender. These are non-QM loans: they fall outside the standard Qualified Mortgage rules, but the lender must still make a good-faith determination that you can repay.
Why are deposits different from qualifying income?
Deposits aren't income. Transfers between your own accounts, loan proceeds and refunds come out, and business expenses come off what's left. That's why a business with large deposits can qualify for less than the owner expects. See the worked example below.
What should a self-employed borrower prepare?
- A short description of the business, your ownership share and time in operation.
- Filed personal and business returns with all schedules.
- A current profit-and-loss statement and business statements if requested.
- Explanations for large transfers, unusual deposits or recent income changes.
- Where the down payment comes from, and how much cash the business needs to keep operating.
If you plan to use business funds for closing, discuss how the withdrawal affects the business. Send documents only through a secure channel after you've spoken.
Worked example: $240,000 in deposits isn't $20,000 a month
A business shows $240,000 in deposits over 12 months. $24,000 of that is transfers, not eligible receipts, leaving $216,000, or $18,000 a month, before expenses.
$18,000 × 50% = $9,000 a month
If the hypothetical program applies a 50% expense factor, the starting qualifying income is $9,000 a month, not the $20,000 the raw deposits suggest. Ownership share, trends and the lender's own calculation can change the result.
Arithmetic to show the distinction, not an underwriting formula. Don't assume a generic expense factor applies to your business.
How Shawn approaches it
Through West Capital Lending, Shawn can compare conventional programs with bank-statement and other alternative-documentation programs from many lenders. The first question he asks is specific: what income does each approach support, and what would you pay for it? Start there before assuming you need a non-QM loan.
Questions people ask
How many years of self-employment do I need for a mortgage?
Two years is common for conventional loans, with exceptions for some borrowers with a shorter history in the same line of work. Bank-statement programs set their own minimums.
Can I get a mortgage with one year of tax returns?
Sometimes. Some conventional loans allow one year of returns when the automated findings and the lender's review support it. Ask what your specific file needs.
Are bank-statement loan rates higher?
Generally, yes. They're non-QM loans, so expect a higher rate and fees than a comparable conventional loan, and often a larger down payment.
Can I use business funds for my down payment?
Often, if the lender confirms that taking the money out won't harm the business. Expect to document the funds and their source.
Do lenders use my gross or net income?
For tax-return loans, lenders start from taxable business income with certain add-backs such as depreciation. For bank-statement loans, they start from deposits and subtract expenses.
Sources
- Fannie Mae Selling Guide: Underwriting factors and documentation for a self-employed borrower
- Fannie Mae Selling Guide: Analyzing individual tax returns
- CFPB: What is a Qualified Mortgage?
- Angel Oak Mortgage Solutions: example business bank-statement program
Checked September 7, 2026. Rules, limits and program terms change; confirm current details before you rely on them. Educational information, not a commitment to lend or a determination of eligibility.