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Self Employed Home Loans: Bank Statements or 1099 Income

Navigating the mortgage process as a self-employed worker presents unique challenges. Traditional mortgage options rely on W-2 income to qualify borrowers, which may not accurately reflect the income of many self-employed workers and small business owners. Self-Employed Home Loans, also referred to as Bank Statement Mortgages, provide a flexible solution. Instead of using tax returns to qualify, self-employed borrowers qualify using alternative forms of income documentation, like bank statements. Let’s explore how these mortgages work and how they can assist in purchasing or refinancing a home.

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Why Consider Self Employed Home Loans?

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.

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Who Can Qualify for a Self Employed Home Loan Using 1099 Income?

Self-Employed Home Loans are designed to help a broad range of self-employed borrowers qualify for a mortgage, regardless of the unique ways they document their income. 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 may leverage tax deductions for their business. Because of this, these borrowers often have tax returns that do not accurately reflect their yearly earnings, making it more difficult to prove their income and using W-2 income documentation. With a Bank Statement Mortgage, small business owners can instead use 1099 income to qualify for a home loan.
  • Gig Workers: Rideshare drivers, delivery drivers, and other gig economy workers may have variable monthly earnings. With a Self-Employed Home Loan, gig workers can use their 1099 income documentation to qualify instead of 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 Bank Statement Mortgage by using a 1099, bank statements, or other alternative income documents.
  • Independent Contractors: Skilled tradespeople like electricians, carpenters, and construction contractors can qualify for mortgage financing using bank statements rather than tax returns, helping them avoid roadblocks related 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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Self-Employed Loan Qualification Requirements

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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Nicholas S.Princeton, NJ

All the Newfi team was quick to respond and always were available and were in touch during the entire refinance process. They also moved things along quickly.

Wyatt E.Deer Island, OR

Very fast responses, and very knowledgeable, I’ve done business with them twice.

Gokulkrishnan S.Union City, CA

Had a great refinance done with Stephanie for our California Rental Investment Property. Awesome rates, much better than Wells Fargo, Bank of America, etc. Communication and follow-ups were very timely. Super efficient experience, strongly recommend them!

David A.Hilton Head, SC

Efficient process. Good support. Good communications.

Roberto G.Glenside, PA

Getting a mortgage usually takes forever and you want to just quit. This was speedy and super convenient! This was for an investment property and i will be using them again.

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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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