Understanding Self Employed Mortgages

The freedom of being self employed is priceless, but self employed mortgage options can be hard to figure out. Typically creditors other than mortgage lenders understand that you may not be showing much net income as a business owner because of tax write offs. When it comes to buying a home however, it’s a different story. We know and understand your true income might not reflect the standard of living that your net income on your tax returns might show. Fortunately we now have self employed mortgage options for you to use and take advantage of.

Technically a self employed borrower can utilize any loan program available. That includes Conventional, USDA, VA, and FHA financing. Although if you can’t qualify based off of what shows on your tax returns you need to know your self employed mortgage options.

Conventional Self Employed Mortgage Options

Before you use an alternative self employed mortgage making sure you can’t use conventional financing is important. When using conforming conventional financing your loan either gets automatically underwritten through Fannie Mae or Freddie Mac. If you have been self employed for at least 5 years or more, through Freddie Mac we can get a self employed borrower approved using one year of their most recent tax returns. That’s important because otherwise you would need 2 years of tax returns and the underwriter would average the income between those two years.

So if you have had a great recent year, or if you plan ahead with your CPA, your most recent tax returns could do the trick in getting you approved for a self employed mortgage utilizing conventional financing. The minimum down would be 5%. Any other self employed options requiring alternative documentation for income would require a minimum of 10% down. Also you need someone good to review the income. Additionally we can add back in depreciation and half of your meals and entertainment deductions. This can be done on your schedule C or your corporate returns.

Self Employed Bank Statement Program

If you have been self employed for at least 2 years you can use your bank statements for income with a bank statement mortgage. Either 12 to 24 months of your personal bank statements or 12 to 24 months of your business bank statements. Only your deposits would be calculated for income, so the debits or net balance are not used for income calculation. Your score must be a 600 to qualify and you have to have a minimum of 30% down. Furthermore for 10% down currently a 680 credit score would be needed. More is required for lower credit scores.

This program can be used for primary residences, second homes, or investment properties. We wouldn’t even look at your tax returns. The debt that shows up on your credit and any other property owned would be included in your debt ratios with a max up to 50%. This is an excellent program for self employed borrowers who couldn’t find financing elsewhere. More info on our bank statement mortgage program. If you can prove you were in the same line of work prior to being self employed we can use 1 year of self employment.

Self-Employed Loan Program Comparison

Three primary paths for self-employed borrowers in Florida — each with different documentation, down payment, and credit requirements:

Feature	Conventional	Bank Statement	DSCR (Investment)
Income Verification	Tax returns (1-2 years)	12-24 months bank statements	Property cash flow only
Tax Returns Required?	Yes	No	No
Min Down (Primary)	5%	10% (680 FICO) / 30% (600 FICO)	Investment only
Min Down (Investment)	Not allowed	20-30%	20%+
Min FICO	620	600 (with 30% down)	660+
Years Self-Employed Required	2 years (or 1 with 5+ year history)	2 years	None — uses property cash flow
Income Add-Backs Allowed	Yes (depreciation, mileage, meals)	50-90% of deposits used	Not applicable
Max DTI	45-50%	50%	Uses DSCR ratio (1.0+ typical)
Property Types	Primary, second home	Primary, second home, investment	Investment only
Best For	SE borrowers with strong tax-shown income	SE with significant write-offs	Real estate investors

Quick read: Conventional is cheapest if your tax returns support the qualification. Bank statement is the workhorse for self-employed borrowers whose write-offs hide real earnings. DSCR is purely for investment property buyers who’d rather qualify on the rental income than their personal returns.

Self Employed Debt Calculations

When using conventional or any other government loan program it’s important to remember a couple of things. Firstly, when calculating your debt ratios as a self employed borrower there are certain items we can add back in for usable income. This is the case for using conventional or any other financing method besides a bank statement mortgage program or a stated income program. For instance if you are using a schedule C then a portion of your mileage deduction can be added back in as usable income, and depreciation, along with a portion of a couple other items.

Additionally it’s important to have an expert take a second look at your tax returns if a loan originator has told you that you don’t make enough money. There are options out there and the level of nuance in regards to the guidelines for self employed mortgage loans is quite in depth. Additionally if you have a K-1 from a corporation you own or are a part owner of, if there was a significant one time deduction that can be properly documented that isn’t likely to happen again for the foreseeable future, that can be added back in as usable income.

When using bank statements for income, a portion of your deposits will be used as income. Anywhere between 50% to 90% of your deposits, depending on the type and size of your business. Additionally for investors DSCR (debt service coverage ratio) loans might be a good option for you as well.

P&L Only and 1099 Programs

Beyond bank statements we also have profit and loss only programs and 1099 programs. The P&L only program lets us qualify on a CPA-prepared profit and loss statement covering the most recent 12 to 24 months. No tax returns and no bank statements needed. Down payments start around 15 to 20% with a 680 score. The 1099 program works similarly for borrowers who get paid as independent contractors. We use 1 to 2 years of 1099s to calculate qualifying income, with an expense factor pulled from the type of work.

Most lenders won’t bother running these alternative-doc programs side by side. We will. The reason is that the same borrower can price out very differently across the four options (conventional, bank statement, P&L only, 1099) and the cheapest one isn’t always the obvious one. We line them up at pre-approval and tell you which one nets out lowest cost over a 5 to 7 year hold.

Common Self Employed Borrower Profiles We Close

• Realtors and 1099 sales reps: Bank statement or 1099 program. Commission income often gets averaged poorly on tax returns; deposits look much better.
• Restaurant and bar owners: Bank statement loan, business deposits. Cash-heavy businesses where the deposits tell a much truer income story than the schedule C.
• Real estate investors: DSCR for the next purchase, bank statement for the primary residence.
• Construction trades and contractors: P&L only or bank statement, depending on whether you have a CPA preparing monthly P&Ls.
• Healthcare providers (doctors, dentists, vets): Conventional with one year of returns is usually enough. Higher loan amounts may need bank statement to avoid jumbo overlays.
• Truckers and owner-operators: Bank statement is usually the cleanest path. Depreciation on equipment kills net income on tax returns.

Why Choose Black Rock Mortgage?

Our team is dedicated to simplifying the mortgage process for self-employed individuals. We understand the complexities of your financial situation and are committed to finding solutions that align with your homeownership goals. Self employed lending is one of our specialties, and the difference between getting approved and getting declined is usually about how the file gets structured up front by an originator who actually understands self employed income.

Florida Self Employed Mortgage FAQ

Take the Next Step

We’d be glad to assist with any questions. If you’re ready to apply for a pre-approval, use the link below — gathering your details gives us a head start on making your purchase or refinance possible. We’ll reach out with any questions. On weekdays we review applications within 24 hours or less.