Date AuthorEric ZhouCategory Mortgage Sense Share:

How to Get a Home Loan When You’re Self-Employed

Our society is moving towards the gig economy faster than ever before. People don’t want to sit in the office anymore working for someone else. They want to pursue their freelance photographer career, open a cupcake shop, or run the best hair salon in town. But when it comes to figuring out how to get a home loan as a self-employed business owner, the options are few and far between, if not outright non-existent. Sound familiar? The good news is that you have more options than you realize and we’re going to dive into this unique opportunity to see your home-ownership dreams realized.

Out with the Old Way

In past years, if you wanted to qualify for a home loan, you had to meet a certain set of government-mandated requirements to be considered for a home loan. Requirements like a certain percentage for the down payment, debt-to-income ratio, tax returns—basically, Uncle Sam wanted to know how likely you were to pay back the loan. These types of loans are called Qualified Mortgage (QM) loans. So, for those who are, and have been, traditionally employed, qualifying for one of these loans is fairly straightforward. But it starts to get tricky, and certainly frustrating, when you’re not traditionally employed and you’re looking to buy a home.

Does this mean if you’re a self-employed freelancer, entrepreneur, or independent contractor there’s no hope of owning a home? Thankfully, no. There is another, relatively newer, way for people like you to be able to qualify for a home loan and meet your home ownership goals. Let’s explore what this new option is and what it could mean for you.

A Better Option

If you’re self-employed and have been looking for ways to qualify for a home loan, you’ve probably discovered you don’t have a lot of options going down the traditional route. Enter the non-Qualified Mortgage (Non-QM) loan. We mentioned above that a Qualified Mortgage (QM) is an option owned and regulated by the government. If you don’t meet their qualifications, the biggest of which is being a traditional W2 employee, then there’s not much you can do about that unless you want to go back to work for someone else. So, what is a non-Qualified Mortgage loan and more importantly, what could it do for you? A Non-QM loan is not owned by the government and does not have the same set of requirements. Think of it like a private loan instead of a government loan. And because it’s a private loan, that means there are a different set of requirements that make it a lot easier for the self-employed to qualify for a home loan. And how do you qualify for a Non-QM loan? Well, instead of requiring your tax returns for the last two years, a Non-QM loan could allow a 1099 instead.

What are other ways you could qualify for a Non-QM loan?

  • 1099-Only Income
  • Bank statements from the last 12-24 months for self-employed borrowers
  • Combination of last year of a W2 along with a 1099 if you’ve been self-employed for less than two years
  • Own investment properties? If you are showing profit from your investment property, this can be treated as income and help you qualify
  • Lower credit scores (but does require more money down)
    • Credit score can go as low as 560 for certain loans
    • Leverage assets as income without liquidation

And this is only scratching the surface. A Non-QM loan can turn your home ownership dreams into a reality without requiring you to be a traditional W2-employee. The bottom line is that for so long, those who are self-employed have gotten the short end of the stick when it comes to being able to buy a home. We’re changing that. Our forward-thinking team provides the self-employed, people like you, with home loans that fit their lifestyle and their goals.