How to Buy a House as a Self-Employed Freelancer

If you’re a freelancer or small business owner dreaming of homeownership, you’ve probably heard this before: “It’s harder to buy a house when you’re self-employed.”  

And while that holds some truth, it’s far from impossible. 

When you work for yourself, you don’t get W-2s or steady paychecks like a borrower with a traditional “9-to-5” job might. But that doesn’t mean you can’t qualify for a mortgage loan. It just means you’ll need to approach the process with a focus on documentation, financial prep, and choosing the right mortgage lenders. 

Let’s break down exactly how to qualify for home loans for self-employed freelancers and what you can do now to get ready. 

Why Self-Employed Borrowers Face More Scrutiny 

Freelancers and small business owners often face what feels like an uphill battle when applying for a self-employed mortgage. Why? It’s all about risk. When mortgage lenders evaluate a borrower, they look at: 

• Income stability 
• Credit score 
• Debt obligations 
• Employment history 
• Debt to income ratio (DTI) 

For an employed borrower, income verification is straightforward. You usually just need your latest W-2.  

For a self-employed freelancer? Not so much. Your income might vary from month to month or season to season. And depending on your business expenses and how you file your taxes, it may look like you earn less than you actually do. 

That uncertainty means more risk, and you’ll need to go the extra mile to prove you’re financially stable enough to manage a mortgage payment. 

Step 1: Get Your Paperwork in Order 

One of the most important things you can do as a self-employed borrower is document your income clearly and consistently. Mortgage lenders aren’t just looking at how much you make—they want to see that your income is reliable and ongoing. Here’s what you’ll typically need to provide: 

• At least two years of personal and business tax returns 
• Profit and loss statements for your business 
• Bank statements (personal and business) 
• Documentation of any savings accounts, investment accounts, or assets 
• Optional: Client contracts, a business license, or letters of employment verification from long-term clients 

Pro tip: If your business is newer and doesn’t yet have a two-year track record, some lenders may still work with you. This is especially true if you have a strong financial profile or can make a larger down payment. 

Step 2: Clean Up Your Finances 

You don’t need perfect credit to get a mortgage, but a clean and strong financial profile helps you stand out. Take time before applying to strengthen the areas that lenders will focus on. 

Improve Your Credit Score 

Your credit score is one of the most important factors in determining your interest rate and loan approval. Here’s how to boost your credit score: 

• Pay down credit cards to lower your credit utilization ratio 
• Avoid opening new credit lines before applying 
• Keep older accounts open to lengthen your credit history 
• Dispute any errors you find on your credit report 

Lower Your DTI Ratio 

Your debt to income ratio (DTI) shows how much of your income goes toward debt each month. Most lenders prefer a DTI below 43%. To lower your DTI: 

• Pay off lingering debts (especially credit cards and car loans) 
• Avoid taking on new loans or financing before buying 
• Increase your income (or show a steady upward trend in earnings) 

Limit Business Deductions 

Here’s where things get tricky. If you write off a lot of business expenses on your taxes, you may reduce your taxable income—which is great for tax season, but not so great for your mortgage application. 

Consider limiting your deductions for one or two years prior to applying. A higher net income on your tax return can make it easier to qualify for the loan you want. 

Step 3: Choose the Right Loan Option 

There’s no one-size-fits-all when it comes to home loans for self-employed freelancers.  

Fortunately, there are several types of loans that might work for you: 

Conventional Mortgage 

If you have strong credit and at least two years of steady income, a conventional mortgage is a great option. These loans often come with lower interest rates and flexible terms but require more documentation. 

FHA Loan 

Freelancers with moderate credit may benefit from an FHA loan, which allows for lower down payments and credit scores. Just be aware of the mortgage insurance premiums and limits on how much you can borrow. 

Bank Statement Loans 

If your tax returns don’t reflect your true income due to deductions, some lenders offer bank statement loans. These use 12 to 24 months of deposits into your business or personal account to verify income. 

These loans can be especially helpful if you don’t fit into a traditional borrower box, but they often come with higher interest rates. 

Step 4: Save for a Larger Down Payment 

Saving for a larger down payment can go a long way toward helping you qualify. A bigger down payment: 

• Reduces the total loan amount 
• Makes you less risky in the eyes of lenders 
• Can help you avoid private mortgage insurance (PMI) 
• Improves your loan terms and potentially lowers your monthly mortgage payment 

Aim for at least 20% down if possible. If not, FHA or low-down-payment conventional options are still on the table 

Step 5: Work with a Lender Who Understands Freelancers 

Not all lenders are created equal, especially when it comes to self-employed mortgage applicants. Look for mortgage lenders who are experienced with freelancers, independent contractors, and small business owners. 

These lenders will better understand the nuances of your income and can recommend tailored loan options based on your unique financial picture. 

A New Home Is on the Horizon 

Being your own boss doesn’t mean you can’t buy a home. Yes, home loans for self-employed freelancers can take a bit more time, paperwork, and planning—but they’re well within reach. 

By strengthening your finances, organizing your documentation, and working with the right mortgage lender, you’ll be holding house keys in no time. Your freelance lifestyle can still lead you to the front door of a place to call home. 

This article was first published on July 15, 2020.