Getting a mortgage when you're self-employed can be more challenging than for traditional employees, but it’s absolutely possible. Whether you’re a freelancer, business owner, or contractor, lenders will assess your income, tax returns, and financial stability differently than they would for a W-2 employee. Here’s what you need to know.

1. Proving Your Income

Self-employed borrowers don’t have a steady paycheck, so lenders require proof of stable income through:
✅ Tax returns (usually the last 2 years of personal & business tax filings).
✅ Profit and loss statements (P&L) to show business performance.
✅ Bank statements (typically 12-24 months) to verify cash flow.

If your reported income fluctuates year to year, lenders may average your earnings to determine how much you qualify for.

2. Managing Tax Deductions Carefully

Many self-employed borrowers write off expenses to reduce taxable income—but this can backfire when applying for a mortgage.

• Lenders look at net income (after deductions), not gross income.
• Too many deductions could make it seem like you earn less than you actually do.

Pro Tip: Work with a tax professional at least a year before applying to balance tax savings with mortgage eligibility.

3. Maintaining a Low Debt-to-Income (DTI) Ratio

Lenders prefer a DTI ratio below 43%, meaning your monthly debts shouldn’t exceed 43% of your gross income.
✅ Pay down credit card balances & loans before applying.
✅ Avoid taking on new debt (car loans, personal loans) before closing.

A lower DTI makes you a less risky borrower and improves your chances of loan approval.

4. Boosting Your Credit Score

Your credit score impacts your mortgage rate, so aim for at least 620 for conventional loans (though 700+ gets you the best rates).
✅ Make on-time payments on all accounts.
✅ Keep credit card utilization below 30%.
✅ Avoid opening new credit accounts before applying.

A strong credit profile can offset the risk of self-employment in a lender’s eyes.

5. Choosing the Right Loan Option

Self-employed borrowers qualify for several loan types:

• Conventional Loans: Require strong credit and proof of income.
• Bank Statement Loans: Use 12-24 months of bank statements instead of tax returns.
• FHA Loans: More flexible on credit & income requirements.
• DSCR Loans (Debt Service Coverage Ratio): Great for real estate investors, approving based on rental income rather than personal income.

6. Preparing a Strong Mortgage Application

Lenders want stability, so before applying:
✅ Separate personal & business finances (use separate accounts).
✅ Keep business profitable for at least 2 years.
✅ Have a larger down payment (10-20%) to reduce risk.

Final Thoughts

Getting a mortgage as a self-employed borrower in Texas requires extra preparation, but with strong income documentation, good credit, and smart financial planning, you can qualify for a great home loan.

If you’re self-employed and looking to buy a home, let’s discuss your options and find the best mortgage for you!