Free Checklist · Self-Employed Borrowers
Self-employed? Here's exactly what the lender will ask for — before they ask.
Business owners, 1099 contractors, and freelancers get declined for one reason more than any other: they walked in unprepared. This is the document list, the accountant conversation, and the timing decisions that get your file approved the first time.
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What the underwriter is actually doing with your tax return
A W-2 borrower hands over two pay stubs and the income question is settled. For you, the underwriter rebuilds your income line by line from your returns. Three things decide the outcome:
1. History. Most programs want two years of self-employment on filed returns. One year can work if you had two or more prior years in the same line of work at similar pay.
2. Add-backs. Non-cash deductions get added back to your income — depreciation, depletion, amortization, casualty losses, business use of home. Everything else you wrote off is gone. A $40,000 vehicle deduction is $40,000 less income you can qualify with.
3. Trend. If year two is meaningfully lower than year one, lenders use the lower year, not the average, and they ask why. Declining income is the number-one reason strong self-employed borrowers qualify for less than they expected.
If your returns show your real income, a conventional, FHA, VA or USDA loan is usually the cheapest path. If your write-offs have buried it, a bank statement, 1099 or P&L-only loan qualifies you on cash flow instead. Either way, the checklist below is what you'll need.
Part 1 of 3
The document checklist
Tick items off as you gather them. Your progress is saved on this device. When you're done, email yourself a copy at the bottom of the page.
Part 2 of 3
10 questions to ask your accountant before you apply
Your accountant's job is to minimize your taxes. The lender's job is to maximize the income they can document. Those two goals pull in opposite directions, and nobody tells you that until it's too late. Have this conversation first.
Which of my deductions will a lender add back, and which permanently reduce my qualifying income?
Depreciation, depletion, amortization and home-office come back. Vehicle, travel, meals, supplies and contract labor don't. Knowing the split tells you what your "lender income" really is.
Is my net income trending up, flat, or down over the last two years?
If it's down meaningfully, you're qualified on the lower year. Better to know now than at underwriting.
What is my two-year average net income after add-backs, by lender math?
Ask them to run it. A good accountant can approximate Fannie Mae's cash-flow worksheet in ten minutes, and that number is your real budget.
Were any expenses last year one-time or non-recurring?
A documented one-time cost (equipment, a lawsuit, a buyout) can sometimes be excluded from the income calculation. It has to be documented and clearly non-recurring.
If I'm an S-corp owner, how much of my income is W-2 salary versus distributions, and will the business returns support the distributions?
Lenders can use distributions only when the business shows it can afford them. Salary alone may understate you; distributions alone may not count.
Have we filed on time, or are we on extension, and when will last year's return be done?
While an extension is open, lenders use the prior two years plus your YTD P&L. After the October 15 extension deadline, most need the return filed before closing. If you're buying this fall, this question decides your timeline.
Is there anything on my returns that doesn't match what the IRS has?
Lenders pull IRS transcripts. A mismatch between the return you hand over and the transcript stops a file cold.
Will you write a letter confirming my two years in business, and what exactly will it say?
Some accountants will confirm you're a client; others will attest to income, expenses, or the expense ratio for a bank statement loan. Know what you'll get.
Should I hold off on amending any returns until after closing?
An amended return mid-process resets the lender's review and often delays or kills the loan. Timing matters more than most people realize.
Given that I'm buying a home in the next 6–18 months, is there anything about this year's return we should think through together with the lender?
This is the conversation that saves deals. Your accountant and your lender should be talking before the return is filed, not after.
These are questions for your tax professional, not tax advice. How you file is between you and your CPA; my role is to show you how a lender will read the result.
Part 3 of 3
Six things that kill self-employed approvals
Every one of these is avoidable with a few months' notice. Most of them are not fixable once the file is in underwriting.
Writing off everything the year before you buy
Legal, smart for taxes, and it erases the income you need. The year before a purchase is the one year to be a little less aggressive, or to accept a bank statement loan instead.
Fix: ask question 10 above, 12 months out.
Cash you never deposited
If it isn't on a return or in a bank account, it doesn't exist to a lender. No program can use undocumented income.
Fix: start depositing everything now; 12 months of clean statements opens the bank statement option.
Personal and business money in one account
Co-mingled accounts make bank statement loans nearly impossible to underwrite and make conventional sourcing a nightmare.
Fix: separate accounts today. The clock on clean statements starts when you do.
Changing your entity type recently
Going from Schedule C to an S-corp can look like a brand-new business to some underwriters, restarting the two-year clock.
Fix: talk to the lender before you restructure, not after.
A big unexplained deposit
Underwriters have to source large deposits on purchase loans. "A client paid me" needs an invoice and a trail, or the deposit gets excluded and your assets fall short.
Fix: keep invoices matched to deposits for the three months before you apply.
Running out of reserves after closing
Self-employed files are often asked for more months of reserves than W-2 files, and business funds for the down payment need a cash-flow analysis showing the business can spare them.
Fix: know your post-closing cash position before you make an offer.
Which path fits
Three ways a self-employed borrower gets approved
Common questions
Self-employed mortgage questions, answered
How many years of self-employment do I need?
Most conventional, FHA, VA and USDA lenders want two years documented by filed returns. One year can work when you have at least two prior years in the same line of work at a comparable income. Bank statement and 1099 programs follow their own rules, typically 12 to 24 months of statements or 1099s.
Which deductions get added back?
Non-cash expenses: depreciation, depletion, amortization, casualty losses, and business use of home. Ordinary operating expenses — vehicle, travel, meals, supplies, contract labor — permanently reduce the income a lender can use.
Can I get a mortgage if I filed an extension?
Usually, with limits. While the extension is open, most lenders use your prior two filed years plus a year-to-date P&L. Once the October 15 deadline passes, lenders generally need the return filed before closing. If you're buying in the fall, file early.
What if my income went down last year?
Lenders typically use the lower, more recent year rather than the average, and ask for an explanation. If the decline came from a documented one-time event, it can sometimes be set aside. If your returns no longer reflect your cash flow, a bank statement loan may be the better fit.
Keep reading
Documentation requirements vary by program, lender and investor guidelines, and change without notice. This page is general education, not tax, legal or financial advice; consult your tax professional about your own return. All loans subject to credit and property approval. Trevor Higgins NMLS #1410557 · Fairway Home Mortgage, a division of Fairway Independent Mortgage Corporation, NMLS #2289 · Equal Housing Lender.