D.C. Area Self Employed Mortgage Qualifications Explained

The mortgage application process can be tricky for self-employed borrowers because they require more paperwork than W-2 employees.

When applying for a loan, your lender will check your credit history, assets, how much debt you owe, and your capacity to repay the mortgage. Lenders usually determine your ability to repay the loan by checking your income & employment history. This part of the application process can be complicated for individuals that don’t have traditional documentation of their income and employment.

In this article, we’ll explain what you need to know about mortgage qualifications if you’re a self-employed homebuyer and what self-employed mortgage options are perfect for you.

Self-Employed Mortgage Qualifications

Most lenders qualify self-employed borrowers similarly to W-2 employees. You must meet the same DTI, credit score, income, and down payment requirements as W-2 employees. However, the requirements may vary per lender.

Lenders usually define “self-employed” as a client with an ownership interest of 25% or higher in a business or a borrower who’s not a W-2 employee. Generally, most lenders require at least two years of steady self-employment before you can qualify for a mortgage.

If you’ve been self-employed for less than two years, there are ways to get a mortgage without using the two-year rule. You might qualify for a loan with just a year of self-employment if you provide a two-year track record in a similar line of work.

You’ll have to document an equal or larger income in your new job compared to the W-2 position. In this situation, you can expect your lender to do an in-depth look at your training and formal education to assess if your business can continue a track record of stability.

Since the process is complicated, you can contact our mortgage experts for help when shopping for self-employed home loans in Washington, DC.

Self-Employed Mortgage Options

If you’re self-employed and don’t qualify for conventional loans, you must wonder which loan is best for self-employed borrowers. Let’s explore your options:

FHA Loan

A Federal Housing Administration (FHA) loan is a government-backed mortgage that grants you the ability to purchase a home with lenient financial requirements. FHA loans require a lower minimum down payment and lower credit scores than most conventional loans.

Since this mortgage is insured by the government, the lenders are protected if the borrower defaults on the mortgage, which is why it’s easier to qualify for an FHA loan.

Bank Statement Loan

A bank statement loan lets borrowers qualify for a loan without submitting the traditional documents that prove income, like W-2s, for example. Instead, you must bring 12 to 24 months of bank statements so your lender can evaluate your business income.

Contact loan officers from The Mortgage Option for more information.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.

Get started with your Digital Mortgage

No hassle, no obligation

Get Started Now!