How to Get a Mortgage When You Are Self-Employed

At FreelanceAtlas, we help freelancers make an irregular income work, including for the biggest purchase most of us make. This guide covers the Fannie Mae, Freddie Mac and FHA rules for self-employed income, how write-offs shrink qualifying income, the document checklist with two letter templates, bank-statement and other non-QM loans, and a 24-month plan. Two posts to read alongside it: How Freelancers Should Manage Money in 2026 and Business Bank Account for Freelancers: When You Need One and How to Open It.

This article is general information, not financial, lending or tax advice. Agency guidelines change and individual lenders can add their own requirements, so confirm current rules with a licensed loan officer, and check any tax decision with a CPA or enrolled agent before you change how you file.

There Is No Special Loan, Only Different Paperwork

Fannie Mae’s Selling Guide section B3-3.5-01 says: “Any individual who has a 25% or greater ownership interest in a business is considered to be self-employed.” FHA uses the same 25 percent line. A sole proprietor, a single-member LLC and the owner of an S corporation all count.

The same section tells the lender to analyze “the stability of the borrower’s income,” “the demand for the product or service offered by the business,” “the financial strength of the business,” and its ability to keep generating enough income to cover the payments.

Behind all of it sits federal law. The Consumer Financial Protection Bureau explains that the ability-to-repay rule “prohibits most lenders from giving you a mortgage unless they have made a reasonable and good faith determination that you are able to pay back the loan,” and requires them to “find out, consider, and document a borrower’s income, assets, employment, credit history, and monthly expenses.” The CFPB’s compliance guide for lenders is blunter: “it is no longer possible to originate loans based on stated income.”

How Long You Need to Be Self-Employed

The default everywhere is two years. The exceptions are where freelancers who switched from a salaried job in the same field can save a year.

Fannie Mae: 12 Months Can Work With a Track Record

Fannie Mae “generally requires lenders to obtain a two-year history of the borrower’s prior earnings.” But B3-3.5-01 allows income with less than two years of self-employment “as long as the borrower’s most recent signed personal and business federal income tax returns reflect a full year (12 months) of self-employment income from the current business.” The file must then document prior income “at the same (or greater) level and in a field that provides the same products or services as the current business, or in an occupation in which they had similar responsibilities.”

In plain terms: a staff UX designer who went freelance in January 2025, doing the same work for similar money, may qualify once the full-year 2025 return is filed. A teacher who started a photography business in 2025 likely cannot.

Freddie Mac: Two Years by Default

Freddie Mac’s consumer site, in its guide to qualifying for a mortgage when you are self-employed (last reviewed December 2, 2025), says “Most mortgage lenders require at least two years of consistent self-employment in the same industry.” Freddie Mac’s Income Calculator FAQ sets the minimum tax documentation for its automated tool at “One year of tax returns or transcripts (Schedule C only) for a business that has been in existence for five or more years” and “Two years of tax returns or transcripts for a business that has been in existence for less than five years.” With under two years, ask the lender what Freddie Mac’s Seller/Servicer Guide allows.

FHA: One to Two Years With Prior Experience

HUD’s Single Family Housing Policy Handbook 4000.1, last revised August 12, 2026, states: “The Mortgagee may consider Self-Employment Income if the Borrower has been self-employed for at least two years.” If you have been self-employed between one and two years, the income counts only if you were “previously employed in the same line of work in which the Borrower is self-employed or in a related occupation for at least two years.” Under one year, the handbook gives no path to count it.

How Underwriters Turn Your Tax Return Into Income

Your lender starts from your tax return, not your invoices, and adjusts it in a cash flow analysis. Fannie Mae requires “a written evaluation of its analysis of a self-employed borrower’s personal income,” using its Form 1084, another cash flow analysis or an approved automated tool. Freddie Mac’s equivalent is Form 91, Income Calculations.

Form 91’s Schedule C section shows the adjustments line by line: start with “Net profit or loss,” adjust for “Non-recurring other income or loss, or expenses,” add back “Depletion,” “Depreciation,” “Amortization or casualty loss” and “Business use of home,” and subtract the “Meals (and entertainment if applicable) exclusion.” Fannie Mae’s section B3-3.6-03 lists the same add-backs, and FHA’s appendix on analyzing IRS forms says “Depreciation, depletion, business use of home, amortization, and casualty losses may be added back to the gross income.”

Two rules decide which year’s numbers count. Fannie Mae requires the lender to look at “year-to-year trends for gross income, expenses, and taxable income.” FHA is more mechanical: income is “the lesser of” the average over the previous two years or the average over the most recent year, and “If the income from businesses shows a greater than 20 percent decline in Effective Income over the analysis period, the Mortgagee must downgrade and manually underwrite.” A rising income gets averaged down; a falling one gets taken at the lower figure, or worse.

How Write-Offs Shrink Qualifying Income: A Worked Example

Lenders want to see income, while every legitimate deduction you claim lowers it on paper. Freddie Mac names the tension directly: deducting expenses “reduces your taxable income,” but “less taxable income could create a higher DTI based on the lower amount listed on your tax documents.”

Here is an illustration with invented but consistent numbers. Say you are a sole proprietor designer, and your Schedule C shows the following. Assume the lender uses a straight two-year average, which is also the lesser figure under FHA’s rule because income rose.

The two-year average is $89,500, or $7,458.33 a month. Fannie Mae’s debt-to-income section B3-6-02 caps manually underwritten loans at 36 percent, “up to 45% if the borrower meets the credit score and reserve requirements,” and loans run through Desktop Underwriter at 50 percent. At 45 percent, your total monthly debts, including the new housing payment, could reach $3,356.25. With a $450 car payment, that leaves $2,906.25 for the mortgage payment, taxes and insurance.

Now change one thing. Suppose that in both years you had also deducted another $12,000 of real but discretionary spending, such as a conference trip and software subscriptions. Those are not add-backs. Qualifying income drops by $12,000 a year, to $6,458.33 a month, and the 45 percent ceiling drops to $2,906.25. After the car payment, $2,456.25 is left for housing: $450 a month less.

The deduction did save tax. Self-employment tax alone on $12,000 of profit is $1,695.55 ($12,000 times 92.35 percent times 15.3 percent), before any income tax. Whether that trade is worth it is your call, but make it on purpose in the two tax years before you apply. Notice also what did not hurt you: the home office and depreciation deductions were added back in full. For which expenses belong on your return at all, see Freelance Tax Deductions: The 2026 Checklist (And What You Cannot Write Off).

What you must never do is overstate income. Lenders can check your returns against IRS records; FHA, for example, allows a signed “IRS Form 4506, IRS Form 4506-C, or IRS Form 8821, and tax transcripts directly from the IRS” in place of signed returns.

If Your Business Is an LLC or S Corporation

Your entity changes which forms the lender reads. A single-member LLC that files a Schedule C is analyzed like a sole proprietorship. If your business files its own return, expect the lender to want it, plus your Schedule K-1 and any W-2 the business paid you. Freddie Mac’s Form 91 has a separate line for W-2 officer compensation from your own corporation, to be validated against the business returns.

S corporation profit is not automatically yours for qualifying purposes. Fannie Mae’s section B3-3.7-02 lets the lender count your share of S corporation income only if it documents that “the income was actually distributed to the borrower consistent with the level of business income reflected on Schedule K-1,” or that “the business has adequate liquidity to support the withdrawal of earnings.” Profit you left in the company, with no liquidity to show for it, may not count.

Two shortcuts exist for established businesses. Fannie Mae lets the lender use one year of personal and business returns if the business has existed for five years and you have held “25% or more” ownership for the past five years, with Form 1084 completed. Business returns can be waived if you provide two years of signed personal returns, use personal funds for the down payment, closing costs and reserves, have been self-employed “in the same business for at least five years,” and show “an increase in self-employment income over the past two years.” FHA waives business returns when personal returns show rising income, closing funds are not from business accounts, and the loan is not a cash-out refinance. If you are still choosing a structure, Sole Proprietor vs LLC for Freelancers covers the trade-offs.

The Self-Employed Mortgage Document Checklist

The CFPB’s loan application packet checklist warns: “If you are self-employed or have irregular or nonwage income, you may need additional documentation. Requirements vary from lender to lender and depending on your specific situation.” Build this folder before you talk to anyone:

• Personal federal tax returns, two most recent years, signed, with all schedules, or IRS transcripts.
• Business returns, two most recent years, such as Form 1065 or 1120-S, unless your file qualifies for a waiver.
• A year-to-date profit and loss statement. FHA requires one, plus a balance sheet, “if more than a calendar quarter has elapsed” since your last tax year ended, and “A balance sheet is not required for self-employed Borrowers filing Schedule C income.” Freddie Mac’s consumer guide lists both too.
• Bank statements, “two most recent” per the CFPB list, with your down payment showing “at least two months’ history of ownership.”
• Proof the business exists. Fannie Mae’s section B3-3.1-04 requires the lender to “verify the existence of the borrower’s business within 120 calendar days prior to the note date,” from “a CPA, regulatory agency, or the applicable licensing bureau, if possible,” or else through a phone listing and address found online.
• K-1s and W-2s from your own entity, if you have one.
• Identification, your Social Security number and any name change documents, also on the CFPB list.
• A letter of explanation for any drop in income, gap or large deposit.

Template: Letter of Explanation for an Income Dip

Re: Explanation of self-employment income, [Your name], loan number [number]

My Schedule C net profit was $[amount] in [year] and $[amount] in [year]. The decrease came from [specific cause, for example a client that paused a retainer from March to June], which was a one-time event.

Since then, [what changed: new clients signed, contracts renewed]. My year-to-date net profit through [month, year] is $[amount], as shown on the attached profit and loss statement.

I have worked in [field] since [year], first as an employee of [employer] and as a self-employed [title] since [date].

Sincerely,
[Your name], [date]

Template: Request to Your CPA for a Verification Letter

Subject: Letter confirming my business for a mortgage application

Hi [CPA name],

I am applying for a mortgage, and my lender needs to verify that my business exists within 120 days of closing. Could you send a short letter on your letterhead confirming:

1. That you prepared my [years] federal tax returns, including Schedule C [or Form 1120-S].
2. The business name, [business name], and that it has operated since [month, year].
3. That the business is active as of the date of your letter.

My expected closing date is [date]. Please send it to me and to [loan officer name, email]. Thank you.

[Your name]

Ask the loan officer for the exact wording they need before you send this, and do not ask your CPA to vouch for future income.

Time Your Application Around Tax Season

When you apply and close decides which year’s return the lender needs. Fannie Mae’s section B1-1-03 sets the rules by application date and closing date:

• Apply and close between October 15 and April 14: “The most recent year’s tax return is required. The use of a Tax Extension (IRS Form 4868) is not permitted.”
• Apply before April 15, close April 15 to June 30: the most recent return is recommended, but “the previous year(s) is also acceptable.” Without the newest return, the file needs a signed IRS Form 4506-C.
• Apply before April 15 and close July 1 to October 14, or apply April 15 to October 14 and close by December 31: if the newest return is not filed, the lender needs a copy of Form 4868, proof of e-filing or confirmation of an estimated tax payment, plus an IRS response showing no transcript is available yet.
• Apply April 15 to October 14, close January 1 to April 14: the most recent return is required again, with no extension.

The lesson for anyone applying this fall: if your 2025 return is still on extension, file it, because an application dated October 15 or later needs that return and Fannie Mae will not accept the extension. In spring, if the year just ended was your strongest, filing early lets the lender use it.

Bank-Statement and Other Non-QM Loans

If your tax returns cannot support the loan, the alternative is a non-qualified mortgage, or non-QM, from lenders outside the agency programs. One version aimed at self-employed borrowers is the bank-statement loan, which estimates income from deposits instead of your tax return.

These loans are legal and still regulated. The CFPB’s compliance guide says the ability-to-repay rule “does not ban any particular loan features or transaction types,” but lenders must use “reasonably reliable third-party records” to verify income, and its list of examples includes “Financial institution records, such as bank account statements.” It also requires lenders to confirm that inflows to your account are “the consumer’s personal income,” not loan proceeds or other money.

The CFPB has tied low-documentation non-QM lending to self-employed borrowers. In its January 2019 assessment of the rule, the CFPB found that non-QM loans in the securities it reviewed “were often low documentation (most often in case of self-employed borrowers).”

What you give up is the protection built into a qualified mortgage. General QMs cannot have negative amortization, interest-only payments, balloon payments or terms over 30 years, and their pricing must stay under thresholds such as 2.25 percentage points over the average prime offer rate for first-lien loans above an inflation-adjusted size. A non-QM loan can include features a QM cannot, and the CFPB’s guide to kinds of mortgage loans tells you to be cautious of prepayment penalties, balloon payments, negative amortization and interest-only structures.

Before you accept a bank-statement loan, ask for the lender’s written program rules and get answers to these questions:

• How many months of statements do you use, personal or business, and what expense percentage do you subtract from deposits?
• Is there a prepayment penalty, an interest-only period or a balloon payment?
• Is the rate fixed, and if adjustable, what is the highest it can reach?
• What would the same loan cost on a conventional or FHA program if I waited for another tax return?

The CFPB advises you to “compare official loan proposals, called Loan Estimates, before making your decision.” Get one for the non-QM loan and one for an agency loan, even a smaller one, to see the real price of not waiting.

A 24-Month Plan Before You Apply

Because lenders read two filed tax years, mortgage planning for freelancers starts about two years out. A sample timeline:

1. 24 months out: separate and record. Run all business money through one dedicated account, keep monthly books, and pay estimated taxes on time.
2. 18 months out: decide your deduction posture. With your tax preparer, review which deductions are add-backs, such as depreciation and business use of home, and which discretionary expenses would lower qualifying income in the two years a lender will read.
3. 12 months out: watch the trend. A large decline can force manual underwriting under FHA. If income dipped for a one-time reason, write the explanation letter while the facts are fresh.
4. 6 to 12 months out: lower your debts and build reserves. Every dollar of monthly debt payment competes with the mortgage payment inside the DTI ceiling. Keep the down payment in an account where it shows at least two months of ownership.
5. 3 to 6 months out: assemble the folder. Prepare a year-to-date profit and loss statement, confirm your CPA or licensing body can verify the business, file any extended return, and talk with two or three lenders.
6. From application to closing: keep deposits boring. Avoid unexplained transfers and large cash deposits, because a lender relying on your deposits must confirm they are income.

If you want a steadier income picture before you start, our income goal planner helps you set a monthly income target that supports the payment you want.

Conclusion

A self-employed borrower gets the same mortgages as everyone else, judged on two years of tax returns, adjusted in a cash flow analysis, and capped by a debt-to-income ratio. Fannie Mae can accept 12 months when your earlier work was in the same field, FHA can accept one to two years with two years of prior experience, and non-QM bank-statement loans exist when tax returns cannot carry the loan, at a price you should measure against waiting.

Do this next. Pull your last two returns and recompute your qualifying income the way Form 91 does, adding back depreciation and business use of home. Divide by 12, multiply by 0.45 (Fannie Mae’s manual ceiling for strong files), subtract your current debt payments, and see what housing payment that supports. If it falls short, decide now how you will file the next return, start a year-to-date profit and loss statement, and book a conversation with a loan officer before your next tax season.

Key Takeaways

• Fannie Mae and FHA treat anyone with a 25 percent or greater ownership interest in a business as self-employed.
• Fannie Mae can count income after 12 months of self-employment if the latest returns show a full year and prior work was in the same field at the same or higher income.
• FHA requires two years of self-employment, or one to two years after at least two years in the same or a related line of work, and forces manual underwriting after a decline of more than 20 percent.
• Underwriters add back depreciation, depletion, business use of home, amortization and casualty losses, but discretionary write-offs reduce qualifying income dollar for dollar.
• In the worked example, $12,000 of extra yearly deductions cut the maximum housing payment by $450 a month at Fannie Mae’s 45 percent manual DTI ceiling.
• Bank-statement loans are non-QM loans that must still meet the CFPB’s ability-to-repay rule, and a 2019 CFPB report found non-QM loans were often low documentation, most often for self-employed borrowers.

Frequently Asked Questions

Can I get a mortgage with only one year of self-employment?

Sometimes. Fannie Mae allows it when your most recent signed personal and business returns show a full 12 months of income from the current business and you previously earned the same or more in a field offering the same products or services. FHA allows one to two years if you worked at least two years in the same or a related line of work beforehand. Freddie Mac’s consumer guidance says most lenders want two years.

Do lenders use my gross income or my net profit?

Agency lenders start from the net profit on your tax return, not your gross invoicing. They then add back non-cash and recurring items such as depreciation, depletion, business use of home, amortization and casualty losses, and adjust for non-recurring income or expenses. FHA then uses the lesser of the two-year and one-year averages.

Do I need a profit and loss statement?

For an FHA loan, yes, if more than a calendar quarter has passed since the end of your last tax year: the handbook requires a year-to-date profit and loss statement and a balance sheet, though Schedule C filers can skip the balance sheet. Freddie Mac’s consumer guide also lists a year-to-date profit and loss statement.

Are bank-statement mortgages legitimate?

Yes, they are non-qualified mortgages that lenders may offer as long as they meet the federal ability-to-repay rule, which accepts bank account statements as third-party records of income. Stated-income loans are no longer allowed, so the lender must still verify deposits as your income. Compare Loan Estimates carefully, because non-QM loans can include interest-only periods or balloon payments that qualified mortgages cannot, and may carry prepayment penalties.

Should I take fewer deductions to qualify for a bigger mortgage?

Only legitimate deductions belong on your return, and you should never overstate income. Within that, it is a trade-off: skipping a discretionary expense raises both your tax and your qualifying income, while depreciation and business use of home are added back anyway. In this guide’s example, $12,000 of extra yearly deductions saved $1,695.55 in self-employment tax but cut the supported housing payment by $450 a month.