Yes, you can get a mortgage when you are self-employed. Most lenders start with your tax returns, and if those support the income you need, a conventional, FHA or VA loan is often the simplest and most affordable path. If write-offs make your income look smaller on paper, bank statement and other non-QM loans can qualify you using bank statements, 1099s, a profit and loss statement or your assets instead.
How Traditional Loans Look at Self-Employment Income
Conventional, FHA and VA loans (often called agency loans) document self-employment income with tax returns. Typically that means two years of personal returns, plus business returns if you own a partnership, S corporation or corporation. Some files can qualify with one year of returns, depending on the program and the automated underwriting result, but two years is the usual starting point.
The lender averages your income over that period and looks at the trend. Steady or rising income is straightforward. Income that dropped from one year to the next gets a closer look, and the lender may use the lower year or ask why it fell.
Lenders also add back certain deductions that reduce your taxable income without costing you cash. Depreciation is the most common, along with depletion, amortization and some one-time losses. Exactly what can be added back varies by program and by the type of business, and guidelines change, so it is worth having a loan officer read your actual returns. My conventional loans page covers how those programs work more broadly.
You will usually also need proof that the business exists and is active, such as a business license or a CPA letter, and sometimes a year-to-date profit and loss statement.
Why write-offs can shrink your qualifying income
Here is the problem most self-employed borrowers run into. A good accountant works to lower your taxable income. A lender uses that same taxable income to decide what you can afford.
Take a hypothetical consultant whose business brings in $190,000 a year. After writing off a vehicle, a home office, equipment, travel and other expenses, the tax return shows $72,000 of net income. If $8,000 of depreciation is added back, the lender works from about $80,000, even though the consultant’s real cash flow is much higher. These numbers are an illustration only.
None of that is wrong. Lowering your taxes legally is smart. It just means the tax return and the mortgage application pull in opposite directions, and that is where non-QM loans come in.
Non-QM Loan Options for Self-Employed Borrowers
Non-QM stands for non-qualified mortgage. These loans fall outside the standard qualified mortgage documentation rules, but the lender still has to verify that you can reasonably repay. They simply use different documents to do it.
Guidelines vary a lot from one non-QM lender to the next, which is why I compare programs across a network of lenders rather than relying on one. The main options for self-employed borrowers are below, and my bank statement and non-QM loans page has an overview. (You may also hear about DSCR loans, which qualify from a property’s rental income. Those are designed for investment properties rather than the home you live in, so I am leaving them out here.)
How does a bank statement loan work?
A bank statement loan uses 12 or 24 months of personal or business bank statements, instead of tax returns, to calculate your income.
- Business statements: The lender totals your eligible business deposits and applies an expense factor to estimate how much of that is profit. The factor may be a standard figure set by the lender or one supported by a letter from your CPA or tax preparer, and it can depend on the type of business.
- Personal statements: The lender usually counts eligible deposits into your personal account, often alongside a few months of business statements that show where the money comes from.
Either way, the lender leaves out transfers between your own accounts and other deposits that are not income, and large or unusual deposits need an explanation. A bank statement loan often fits business owners whose cash flow is strong and consistent but whose returns show heavy write-offs.
Can you get a mortgage with only 1099 income?
Often, yes. If you are an independent contractor, freelancer or commission earner paid on 1099s, some non-QM programs qualify you from your 1099 forms instead of your full tax return. The lender typically uses one or two years of 1099s, may apply an expense factor, and may verify recent earnings with year-to-date records or bank statements. This tends to fit people with steady contract income and large deductions on their return.
Agency loans can work with 1099 income too, but they generally look at the tax return, so the same write-off question applies.
What is a P&L loan?
A P&L (profit and loss) loan qualifies you from a profit and loss statement for your business, usually covering the last 12 or 24 months. Many programs require the P&L to be prepared or reviewed by a CPA, an enrolled agent or another licensed tax preparer, and some ask for a few months of bank statements to back it up. It can suit a business owner whose books are clean and current but whose tax returns do not reflect the income they need.
How does an asset depletion loan work?
An asset depletion loan (sometimes called asset utilization) lets you qualify based on liquid assets rather than a paycheck or business income. The lender adds up your eligible assets, such as checking, savings, brokerage accounts and often retirement accounts, then divides the total by a set number of months to create a monthly qualifying income.
Here is a hypothetical example. A borrower with $1,500,000 in eligible assets, at a lender that divides by 240 months, would show about $6,250 a month of qualifying income. Each lender sets its own formula, decides which assets count and may count some accounts, such as retirement funds, at a reduced value. These figures are an illustration only.
Asset depletion can be useful for retirees, high-net-worth borrowers, people who recently sold a business, and anyone whose wealth sits in their accounts rather than their income. Some agency programs allow a limited form of asset-based qualifying, but the non-QM versions are usually more flexible.
What Are the Trade-Offs of Non-QM Loans?
Flexibility comes at a cost, and I want you to see it clearly before you decide.
- Pricing is typically higher. Non-QM loans usually carry higher rates and costs than comparable agency loans, because the lender takes on more risk and cannot sell them through the agency programs.
- Larger down payment and reserve expectations. Many programs expect more money down and more months of reserves than an agency loan would. The exact requirements vary by lender, program and credit.
- Prepayment terms on some programs. Some non-QM loans include a prepayment penalty or similar terms. Read the loan terms before you commit.
- Generally not assumable. Non-QM loans are generally not assumable, which can matter when you sell someday.
- No promise of a later refinance. Many borrowers plan to refinance into an agency loan once their tax returns support it, but there is no way to know today whether you will qualify or whether rates will be lower then.
Approval on any program depends on your full file: income documentation, credit, assets, the property and the lender’s review.
How to Prepare for a Self-Employed Mortgage
A little organization before you apply makes any of these programs easier:
- Separate business and personal accounts. Mixed accounts make it hard for a lender to tell income from transfers, and some bank statement programs require a dedicated business account.
- Keep deposits consistent. Regular deposits are easier to read than irregular lump sums. In the months before you apply, avoid moving money between accounts in ways that are hard to follow.
- Be ready to explain large deposits. Anything unusual, such as a client paying a year in advance or the sale of equipment, will need a short explanation and sometimes documentation.
- Ask your CPA or tax preparer for a letter. Many programs ask for a letter confirming that your business exists and how long you have owned it, and some bank statement programs use it to support your expense factor.
- Gather your documents early. Two years of tax returns, recent bank statements, your 1099s, a year-to-date P&L and your business license cover most programs.
- Look after your credit. Pay on time, keep revolving balances low and check your reports for errors. Credit affects which programs you qualify for and how they are priced.
- Talk with me before you file. I will not tell you how to file your taxes; that is your tax professional’s job. But if you plan to finance a home in the next year or two, it helps to know how a lender will read the return before it is final.
Agency or Non-QM: Which Is Right for You?
The short version: if your tax returns support the payment you want, an agency loan is usually the better value. If they do not, or if your wealth sits in assets rather than income, non-QM is worth a look.
An agency loan tends to fit when:
- Your net income after write-offs still supports your target payment.
- You have two years of steady or rising self-employment income.
- You want the most common, widely available loan terms.
A non-QM loan tends to fit when:
- Your returns show much less than your real cash flow.
- Your income recently rose and your returns have not caught up.
- You have substantial assets but limited documented income.
The clearest way to decide is to see both side by side: the payment, the cash to close and the total cost. Start with the monthly budget that fits your life. My guide on how much house you can afford in Arizona shows how lenders build that number.
Key takeaway: Being self-employed does not rule you out. Start by seeing what your tax returns support with an agency loan, then compare bank statement, 1099, P&L or asset depletion options if the returns fall short.
How I Help Self-Employed Borrowers in Arizona
I work with a network of lenders, so I can look at your file through several sets of guidelines instead of forcing it into one. I will read your returns, show you what an agency loan would look like, then lay out the non-QM alternatives and their trade-offs so you can decide with clear numbers. If a traditional loan fits better, I will tell you.
When you are ready, get pre-qualified and we will go through your income and documents together. Nothing is approved until underwriting reviews your full file, and every program has its own requirements. If you are wondering what each step tells a seller, read prequalification vs. preapproval.
