Money Talks, So Should You

How the self-employed qualify for mortgages

Tips for contractors and freelancers trying to get a home loan

Charlene Oldham
by Charlene Oldham, Dimespring Contributor

These days, it can be difficult to get a mortgage loan even if you have a solid employment history and credit score. But the bar can be even higher for those who are their own boss.

In the past, many self-employed people qualified for stated-income mortgages that didn’t require a ton of paperwork to prove income.

Today, self-employed borrowers must typically provide at least a couple of years of tax returns and other documents to show they have the net income needed to support a mortgage. Experienced entrepreneurs in stable industries can sometimes have it easier when demonstrating they are worth the financial risk, mortgage experts say. But, sometimes, even experience isn’t enough to convince lenders to take a chance in today’s market.

READ: How to get ready for your first home closing

“The whole financing game changed in 2008,” says Bill Hays. “They limited borrowing very aggressively through that year.”

As a carpenter who consults on rehabilitation projects, Hays has first-hand experience with the tighter lending requirements as both a businessman and a homeowner. Hays has been through a couple of rounds of refinancing since buying his 4,000-square-foot Victorian home near St. Louis’s Tower Grove Park in 2001.

So he was a little surprised when a local bank recently turned him down for a loan that would have consolidated some of his debts and lowered payments and interest rates. After all, Hays has more than 20 years of experience in the industry and healthy credit score. The bank also already holds the mortgage on an industrial property he owns.

“And I made more money than ever last year and still got turned down on my loan,” says Hays, who speculates a hurried appraisal undervalued the house, which had been appraised at much higher market value just a little over a year earlier.

“What killed my appraisal this year were the comparables they used. Mine is literally a new house transplanted into a 1890s Victorian structure,” he says. “My circumstance is unusual and, bankers being bankers, they don’t want to get out of their box.”   

Hays is planning to complete projects on the third floor that he hopes will boost his next appraisal and help him break through that box.

READ: What's the best retirement plan for the self-employed?

Here are a few tips for other self-employed people looking to land a mortgage or refinance an existing one:

  • Have your paperwork in order: Talk to a mortgage lender about your specific circumstances since the documentation you need differs based on what of type of business you own.
  • Be careful about write offs that lower income below the amount you might need to qualify for a mortgage:  “Balance what to write off versus what to show as income – planning for when you have a large purchase like a home in your future,” says Geoffrey Davis, a mortgage loan consultant at First United Bank in Texas. “None of us want to pay more taxes than required, and a self-employed borrower  depending on their risk level for a possible IRS audit  has the ability to write off many business-related expenses. [But] doing so will leave them little in the way of income to use for their loan.”
  • Clean up your credit score: A stellar credit score is important indicator to lenders that you are a good financial risk, which can be crucial for people who don’t have a predictable salary.
  • Make sure your appraisal is accurate if you are refinancing: A lower appraised value may cut your property tax bill, but it could also impact your ability to refinance your loan.
  • Previous employment can help: If you have a long history of steady employment and earnings before you became self-employed, it can help your case. And, if you are working on a long-term project for a company or client, it may also be a good idea to ask to be brought on as a salaried employee for the length of the project rather than continue to work as a contractor since it means you will be getting a W-2 at the end of the year.


Charlene Oldham is a St. Louis-based freelancer and teacher who has worked as a staff writer for newspapers including The Dallas Morning News. She now teaches college-level communications courses and writes about everything from finance to food for publications including SUCCESS and Eating Well.