Do I need 2 years of self-employment to get a mortgage?

Most lenders require 2 years self-employment history. Exceptions: 1 year if you worked in same industry as W-2 employee before, or if you have 25%+ down payment and excellent credit (740+).

🏢 Self-Employed Mortgage 2025: 68% Approval Rate - Bank Statement Loans (No W-2 Required)

Q: How do lenders calculate self-employed income?

Traditional: Net income from tax returns (Line 31 on 1040) + add-backs (depreciation, depletion). Bank statement: Average monthly deposits × 50% (or 75% for personal accounts). 2-year average required.

🎯 Quick Answer

Self-employed mortgage requirements 2025: 2 years self-employment history (1 year with exceptions), credit score 620+, DTI ≤45%. Traditional loans: 2 years tax returns. Bank statement loans: 12-24 months statements.Average approval rate: 68% vs 74% for W-2 employees.

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Self-Employed Mortgage Options in 2025

Self-employed borrowers have multiple loan options. Compare lenders specializing in self-employed mortgages.

Option 1: Traditional Mortgage (Tax Returns)

📋 Traditional Requirements

✅ History: 2 years self-employment (same industry)
✅ Documentation: 2 years personal + business tax returns
✅ Credit Score: 620+ (conventional), 580+ (FHA)
✅ DTI Max: 45% (conventional), 50% (FHA)
✅ Income Calculation: 2-year average net income + add-backs

Best for: Self-employed with minimal write-offs, showing strong net income on tax returns.

Option 2: Bank Statement Loan

📋 Bank Statement Requirements

✅ History: 2 years self-employment
✅ Documentation: 12-24 months business bank statements
✅ Credit Score: 660+ (680+ for best rates)
✅ DTI Max: 45%
✅ Income Calculation: Average deposits × 50% (business) or 75% (personal)
✅ Down Payment: 10-20% minimum

Best for: Self-employed with heavy tax write-offs, showing low net income but strong cash flow. Find bank statement loan specialists.

Option 3: Asset-Based Mortgage

📋 Asset-Based Requirements

✅ Assets Required: $500k+ in liquid assets
✅ Documentation: Bank/investment account statements
✅ Credit Score: 700+
✅ Income Calculation: Total assets ÷ 60-120 months
✅ Down Payment: 20-30% minimum

Best for: High-net-worth self-employed with significant assets but complex income.

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How Lenders Calculate Self-Employed Income

Traditional Method (Tax Returns)

📊 Income Calculation Formula

Step 1: Net income (Form 1040 Line 31)

Step 2: Add back non-cash expenses:

Depreciation
Depletion
Amortization
One-time losses

Step 3: Calculate 2-year average

Step 4: Divide by 12 for monthly income

Bank Statement Method

📊 Bank Statement Formula

Business Accounts: Average monthly deposits × 50%

Personal Accounts: Average monthly deposits × 75%

Example: $20,000/month deposits (business) = $10,000 qualifying income

Documents Needed for Self-Employed Mortgage

Traditional Loan Documents

📄 Personal tax returns - Last 2 years (1040 + all schedules)
📄 Business tax returns - Last 2 years (1120, 1120S, or 1065)
📄 Profit & Loss statement - Year-to-date
📄 Balance sheet - Current
📄 Business license - Copy
📄 CPA letter - Verifying self-employment

Bank Statement Loan Documents

📄 Business bank statements - 12-24 months
📄 Personal bank statements - 2-3 months
📄 Business license - Copy
📄 CPA letter - Optional but helpful

Tax Strategies for Self-Employed Homebuyers

⚠️ The Write-Off Dilemma

Heavy tax write-offs reduce your qualifying income for traditional mortgages. Plan ahead: minimize deductions for 2 years before applying, or use bank statement loans instead.

2-Year Planning Strategy

Year 1-2 before purchase: Minimize business deductions
Increase W-2 salary if you have an S-Corp
Defer large purchases until after mortgage closes
Document all income sources consistently

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Frequently Asked Questions

Can I get a mortgage if I'm self-employed?

Yes! Self-employed borrowers can get mortgages through traditional loans (2 years tax returns), bank statement loans (12-24 months statements), or asset-based loans.

What is a bank statement loan?

Bank statement loans use 12-24 months of business bank statements to verify income instead of tax returns. Ideal for self-employed with heavy tax write-offs.

How do lenders calculate self-employed income?

Traditional: Net income from tax returns + add-backs. Bank statement: Average monthly deposits × 50% (business) or 75% (personal). 2-year average required.