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Qualify for a Home Loan When Self-Employed

Posted by Summit Lending on January 25, 2018
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When you're looking to qualify for a home loan as a self-employed borrower, there are a lot of misconceptions that abound. Chiefly, that it is much harder to get a mortgage loan in SoCal if you're self-employed. At Huntington Beach based, top Yelp! reviewed Summit Lending, we're here to tell you that some of these myths are inaccurate. Here's a look at what to expect, when applying to qualify for a home loan when you're self-employed.

It is true, that without standard W2 forms, you will probably need to provide additional documentation, so that lenders can verify your income and assets, to confirm that you will be able to repay the loan. Statements that self-employed home buyers will need to qualify for a low interest rate mortgage loan in SoCal will typically include:
  • Two years of financial history, to include federal income tax returns, debt statements, and asset statements. However, it's worth noting that some of the guidelines for self-employed buyers are loosened up a little bit. In some cases, you may only need to provide one year of tax returns.
  • If you're self-employed as a small business owner, you'll likely need to provide a 1099, and/or a Profit and Loss Statement.
In addition to providing these statements to qualify for a mortgage, we have a few suggestions that can help you qualify for a home loan when you're self-employed in SoCal.
  • Consider reducing the amount of business tax deductions you take
    You'll need to speak with a CPA or other financial professional, to confirm this is a smart step for you. For some self-employed borrowers in Southern California, reducing the number of business deductions will increase your net income. Net income is the primary number that lenders use to determine approval status.
  • Keep your business bank accounts and personal bank accounts separate
    A lot of self-employed people use business and personal accounts interchangeably. Others may only use one account. It is smart to have separate accounts for easier accounting, and so that all funds are easier to trace and verify.
  • Add a co-borrower
    A co-borrower (particularly if they are a W2 employee) can help you to get qualified for a mortgage easier, so long as they have good credit, and a solid financial history. Of course, a co-borrower must be willing to assume responsibility for the loan if you default. But, in cases where it makes sense, having a co-borrower can help you to increase the net income submitted on your mortgage application.
  • Offer a big down payment
    If you're able to offer a significant down payment, it won't hurt you, as a self-employed borrower. While there are loans that require 0-3% down, wherever possible, you'll increase your chances of being approved if you can put down more.
  • Reduce debt to income, and maximize credit score
    Having little other debt and having a good credit score will benefit self-employed borrowers tremendously. In the months leading up to your application, try to cut back on splurge purchases, and use that money to resolve outstanding debts.
At Summit Lending, we love working with self-employed individuals to secure their American Dream of homeownership. Our customer service driven, experienced, and top-reviewed mortgage brokers and professionals have helped self-employed men and women in Ventura County, Los Angeles County, Riverside County, Orange County, San Diego County, and more to secure great mortgage loans at low rates.

Contact Summit Lending today at 888-451- 9006 to learn more about qualifying for a home loan as a self-employed individual in Southern California.