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Mortgage applications can be complex, even for those with traditional employment. So, if you’re a self-employed entrepreneur or freelancer with various income streams, you may need clarification about how your financial portfolio fits into the mortgage equation.

Good news: you’re not alone. With the rise of the gig economy, self-employment is increasingly common, making your situation more relatable than you might think. In this article, we’ll demystify the homebuying process for self-employed folks like you.


Understanding Your Self-Employed Financial Portfolio

The first essential step for anyone who is self-employed and starting their homebuying journey is understanding their financial portfolio.

Unlike traditionally employed borrowers, your income and expenses vary. Elements like ‘tax returns,’ ‘business profits,’ and ‘deductible business expenses’ are components that lenders examine closely because they’re indicators of your financial stability and affect your mortgage eligibility.

Lenders generally require two years of tax returns alongside other essential documents like profit and loss statements to gauge your financial health. Strong financial records increase your chances of being seen as a suitable mortgage candidate, possibly securing more favorable rates.


Credit Score Essentials for Self-Employed Freelancers & Entrepreneurs

Your credit score is pivotal in any mortgage application but becomes even more critical when self-employed. A higher credit score can counterbalance the unpredictability of your income, reassuring lenders of your creditworthiness.

How can you enhance your credit score if it’s less than ideal? Here are some quick tips:

  • Pay Bills on Time: Consistency in paying your bills improves your credit score. Late payments harm it, so set reminders or auto-payments.
  • Reduce Credit Card Balances: High credit utilization impacts your score negatively. Aim to keep your balances below 30% of your credit limit.
  • Check for Errors: Mistakes on your credit report can unfairly lower your score. Regularly review your report and promptly dispute any inaccuracies you find.

Remember, improving your credit score is a marathon, not a sprint. Start as early as possible, be consistent, and over time, you’ll see a positive change that could make your journey to homeownership smoother and more enjoyable.


Preparing Your Self-Employed Mortgage Application: A Checklist

Preparation is key when you’re self-employed and looking to secure a mortgage. Unlike traditionally employed applicants, you’ll likely need to provide a more comprehensive set of documents to verify your income and financial stability. 

Documents to Gather

  • Tax Returns: The last two years of personal and business tax returns are usually required.
  • Profit and Loss Statements: Up-to-date and ideally prepared by an accountant.
  • Bank Statements: At least three to six months of both personal and business accounts.
  • Business License: Proof that your business is legal and operational.
  • Credit Report: You’ll want this in advance to review for any discrepancies.
  • Debt-to-Income Ratio: Calculate your debts versus your income, which you can prepare yourself or with an accountant.
  • List of Assets: Such as properties, investments, and valuable possessions.

Questions to Prepare For

Being self-employed, you might face unique questions from potential lenders, such as:

  • How long have you been self-employed? A longer history can offer more assurance to lenders.
  • What is your business structure? Sole proprietor, LLC, partnership, etc.
  • What’s your average monthly income? Unlike salary earners, your income may fluctuate.
  • Do you have any business debts? Business liabilities can affect your loan eligibility.
  • How do you manage income fluctuations? Your financial management skills can make lenders more or less confident in your reliability.

By preparing for these questions and having all your essential documents in order, you’ll be better positioned for mortgage application success.


Start Your Homeownership Journey on the Right Foot

Don’t let self-employment discourage you from starting your homeownership journey. With the right info and preparation, you can navigate the mortgage process just like anyone else.

If you’re ready to take the next step, consider contacting a banker at The Federal Savings Bank who can guide you through the intricacies of the mortgage process.

Or jump in and start the loan process with The Federal Savings Bank—we’re focused on mortgages and dedicated to your homebuying dreams.


Subject to credit approval. Terms and conditions may apply. Property insurance is required on all loans secured by property.

This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner. For tax advice, please consult a tax professional.

This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.