Mortgage for Self-Employed Borrowers: Bank Statements or 1099 Income
Navigating the mortgage process as a self-employed borrower can present unique challenges. Traditional mortgage options typically rely on tax returns to qualify borrowers, which may not accurately reflect how many self-employed individuals and small business owners actually earn. Mortgage options for self-employed borrowers are designed to address this gap by allowing alternative income documentation, such as bank statements or 1099 income, instead of relying solely on tax returns. These flexible mortgage programs can support self-employed borrowers who are purchasing or refinancing a home.
Can You Get A Mortgage If You're Self-Employed?
Yes, self-employed borrowers can qualify for a mortgage, but the process works differently than it does for W-2 employees. Instead of relying strictly on tax returns, lenders may evaluate income using bank statements, 1099s, or business financials to better reflect actual cash flow. These options are especially helpful for borrowers whose tax returns don’t show their full earning potential. Understanding how lenders assess self-employed income is the first step to choosing the right mortgage structure.
Self-Employed Mortgage Requirements Overview
Key Features of Newfi’s Self-Employed Mortgages
- Loan-to-Value (LTV): Purchase up to 90%, Rate & Term Refinance up to 90%, Cash-Out Refinance up to 80% (scenario dependent)
- Minimum Credit Scores: As Low as 640
- Loan Amounts: $100k to $3.5 Million
- Income Documentation Options: 12–24 months bank statements, 1 year full doc (most recent), 2 years of 1099, or profit and loss (P&L) statements
- Eligible Property Types: Primary, Second Homes, and Investment Properties
- Loan Terms Available: 15, 30 & 40-Year Fixed Rate and 30 & 40-Year Interest-Only
For a detailed breakdown of documentation, credit, and income guidelines, borrowers can review the full self-employed mortgage requirements on our requirements page.
Why Consider a Mortgage Designed for Self Employed Borrowers?
Self-employed workers and small business owners often take advantage of tax deductions, which means that their tax returns may not always accurately reflect their yearly earnings. Because of this, it can be harder for self-employed individuals to qualify for traditional mortgage financing. A Bank Statement Mortgage solves this issue by using the deposits and expenses on a borrower’s bank statements to evaluate their income, rather than relying solely on tax returns. This flexibility makes it easier to qualify, providing a straightforward path to homeownership for gig workers, freelancers, contractors, and others with non-traditional income streams. These mortgage options are commonly used by self-employed borrowers who want qualification based on real income rather than taxable income alone.
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Who Can Qualify for a Mortgage as a Self-Employed Borrower?
Self-employed borrowers qualify for a mortgage differently than W-2 employees, but many income types are eligible when documented correctly.
Mortgage options for self-employed borrowers are designed to help individuals qualify even when their income is documented through bank statements, 1099s, or other non-traditional methods. You may benefit from using a Bank Statement Mortgage if you fall under one of the following groups.
- Small Business Owners: From boutique shops to local service providers, small business owners often take advantage of tax deductions that reduce taxable income. As a result, tax returns may not accurately reflect actual cash flow. With a Bank Statement Mortgage, these borrowers can use 1099 income of bank deposits instead of W-2 documentation to qualify for a mortgage.
- Gig Workers: Rideshare drivers, delivery drivers, and other gig economy workers may have variable monthly income. Mortgage options for self-employed borrowers allow gig workers to qualify using 1099 income or bank statements rather than traditional tax returns.
- Freelancers: Writers, designers, consultants, and other freelancers work on a per-project basis and may use alternative documentation to report their income. These borrowers may be able to qualify for a mortgage using bank statements, 1099s, or alternative income documentation that better reflects their earnings.
- Independent Contractors: Skilled tradespeople like electricians, carpenters, and construction contractors may qualify for mortgage financing using bank statements instead of tax returns, helping them overcome challenges tied to non-traditional income documentation.
How to Prove Self Employment Income for a Mortgage
For self-employed individuals, the process of proving income can be less straightforward than it is for W-2 workers. Lenders specializing in Bank Statement Mortgages, like Newfi, often require alternate forms of documentation. Here’s a short list of alternative income documentation you may be able to use to prove income:
- Business or Personal Bank Statements: Self-employed borrowers can provide 12 or 24 months of their business or personal bank statements to qualify for a Bank Statement Mortgage. Lenders analyze your qualified deposits and apply an expense factor to calculate how much you can qualify for.
- 1099 Income Documentation: With a Self-Employed Home Loan, borrowers can submit their 1099 income documentation to qualify. When using a 1099 to qualify you, lenders will look over the previous 1 to 2 years of income and apply a 10% reduction for business expenses. This 10% expense ratio allows lenders to qualify you on the other 90% of your income.
- Profit and Loss (P&L) Statements: Some small business owners may use a P&L statement to more clearly document their business income. With a Bank Statement Mortgage, these borrowers can submit a P&L statement as income to qualify for a loan. Some lenders may request a P&L statement to gain a better understanding of a borrower’s financial health, as these documents can provide insight into a business’s revenue and expenses over a specific period.
For more details on the documentation required, visit How Do I Prove Self-Employment Income for a Mortgage?
Have Questions About Income Documentation?
There are several different ways to qualify for a Bank Statement Mortgage using alternative income documentation. Connect with our team of Senior Loan Advisors to learn more!
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Mortgage Qualification Basics for Self-Employed Borrowers
Bank Statement Mortgages generally have specific requirements designed to ensure borrowers can manage mortgage payments:
Credit Score: Most lenders require a minimum credit score of 620, although higher scores can lead to better loan terms and lower interest rates.
Debt-to-Income (DTI) Ratio: Lenders will assess your DTI ratio, which compares your monthly debt payments to your total monthly income. A DTI of 43% or lower is typically favorable.
Down Payment: Most lenders require a down payment of at least 10%. A larger down payment may help lower your monthly mortgage payments and improve your overall chance to get approved.
Self-Employment History: Many lenders require that borrowers provide at least 2 years of self-employment history when qualifying for a mortgage loan to provide income verification.
To learn more about mortgage options for self-employed workers, check out How to Get a Mortgage When Self-Employed.
Homeownership Tips for Self Employed Borrowers
Whether you’re a seasoned homeowner or have plans to purchase your first property, it’s important to take time and look over your financial situation to set yourself up for the best possible chance to qualify. Here are a few key tips to strengthen your mortgage application:
Strengthening Your Creditworthiness
- Maintain Clear Records: Keep up-to-date financial records, including bank statements and P&L statements, to simplify the documentation process. You can refer to the IRS Schedule C Form for guidance on reporting your business income.
- Improve Your Credit Score: Regularly check your credit report for accuracy, and work on improving your score before applying.
Smart Financial Practices
- Understand Your Financial Landscape: Take the time to assess your financial health by reviewing income, expenses, and any fluctuations. Having a clear picture will help you present a stronger case to lenders.
- Build a Solid Emergency Fund: Ensure you have a sufficient emergency fund in place to cover unexpected expenses. This not only provides financial security but also demonstrates to lenders your ability to manage financial challenges.
- Financial Planning Review: Working with financial planners who specialize in self-employed finances can provide personalized strategies for budgeting, saving, and improving your overall chances of qualifying for a mortgage loan.
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Benefits of Choosing a Bank Statement Mortgage
No Tax Returns Required
Bank Statement Mortgages allow self-employed borrowers to submit the income documentation that makes sense for their situation. That means there are no tax return requirements for a self-employed mortgage.
Greater Flexibility
As a Non-Qualified Mortgage (Non-QM) solution, Bank Statement Mortgages aren’t required to adhere to the same qualifying guidelines as traditional QM loan options. Each Non-QM lender sets its own requirements, providing more options for self-employed borrowers.
Purchase or Refinance Solutions
Self-employed borrowers can use a Bank Statement Mortgage to purchase a home or refinance. At Newfi, self-employed borrowers can also use a Self-Employed Mortgage for a Rate & Term or Cash Out Refinance.
Applying for a Self Employed Mortgage
To streamline the mortgage application process, follow these steps:
1. Gather Necessary Documentation: Start by collecting all relevant financial documents, including bank statements, P&L statements, and any applicable 1099s.
2. Consult a Mortgage Loan Officer: Working with a knowledgeable mortgage loan officer can help you navigate the application process. Newfi’s loan advisors are experienced in self-employed mortgage options and can help you find the best fit for your situation.
Discover the Benefits of a Bank Statement Mortgage
Learn how a Bank Statement Mortgage can bring flexibility to your unique financial situation.
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Frequently Asked Questions
How will my self employed income be calculated?
Calculating self-employed income for a mortgage is based on your unique situation. We can combine W-2, 1099, and Bank Statements to calculate your monthly income. When looking at your business or personal bank statements, we will review either 1 or 2 years of documentation and use our quick calculator to identify your income.
When using a 1099, we will review your total income and take away an expense ratio of 10% (unless otherwise provided) and qualify you on the remaining 90% of income. If you have several forms of income, we will add all of the sources together to determine your average monthly income. We can consider most sources of income that have a two-year history!
What documents do I need to qualify for a Bank Statement Mortgage?
Self-employed borrowers will need to submit all required documentation to qualify, such as:
- Proof of Income
- 12 to 24 Months of Personal or Bank Statement
- 1099 Income
- W2 Income
- 2 Years of Self-Employed Work History
- If you co-own a business, you’ll need to document how much of the business you own.
- Borrower Financial Details
- Property Details
The income documentation you submit depends on how you make your money! If your tax returns don’t accurately reflect your yearly earnings, we can use other income sources.
How much self-employment history do I need to provide?
At Newfi, borrowers will be asked to provide 2 years of self-employment history to qualify. There may be exceptions available for borrowers with at least 1 year of self-employment history on a case-by-case basis if you have strong job experience, a history of other income earning, etc. Reach out to us for more information.
Can I qualify for a Self-Employed Mortgage using multiple income sources?
Many people buying homes may need to combine sources of income to qualify for a mortgage. Traditionally, this means two or more tax returns. However, self-employed borrowers can qualify for a self-employed mortgage using multiple different sources of income documentation.
Can first time home buyers qualify for a Bank Statement Mortgage?
Yes, self-employed first time home buyers can qualify for a Bank Statement Mortgage. As long as you can submit all the required documentation and meet our specific lender requirements, you can qualify for a self-employed mortgage.
Can I qualify for a traditional mortgage if I'm self-employed?
Yes! The biggest roadblock many self-employed borrowers face when qualifying for a traditional mortgage is income documentation requirements. However, if the borrowers W2 income accurately reflects their yearly earnings and they meet the other lending requirements, self-employed borrowers can qualify for a traditional mortgage.
Are Self Employed Mortgages backed by the government?
Self-Employed Mortgages are Non-QM mortgage options. Non-QM loans are not backed by the government and do not have standardized guidelines. This means that Non-QM lenders, like Newfi, have qualifying requirements that vary depending on the lender you choose.
How can I get a Bank Statement Mortgage?
Self-Employed Mortgages are Non-QM mortgage options. Non-QM loans are not backed by the government and do not have standardized guidelines. This means that Non-QM lenders, like Newfi, have qualifying requirements that vary depending on the lender you choose.
What are rates for Self-Employed borrowers?
Your exact mortgage rate depends on many factors: income calculation method, your down payment/equity position, credit score, loan term, income, and debt. Contact us to get a free quote on our competitive self-employed mortgage rates and learn how much you could qualify for!
How do I apply for a Self Employed Home Loan?
Call us at (888)316-3934 to get in touch with a Newfi Senior Loan Advisor today. Because everyone has their own unique situation, we recommend speaking to a loan advisor about your options as your first step. Fill out the form on this page for a free consultation with one of our licensed loan advisors!
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Final Thoughts
Navigating the mortgage landscape as a self-employed worker or small business owner can be complex, but options like Bank Statement Mortgages make the process more accessible. By allowing you to use bank statements and other documentation in lieu of traditional tax returns, these loans cater to the unique financial situations of self-employed borrowers. Whether you’re a small business owner, freelancer, or gig worker understanding your options can help empower you to start the homeownership journey and achieve your homeownership goals.
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