The controversial truth is that banks don’t actually hate self-employed people; they just hate that they can’t put us in a tidy little box. If you have a W-2, you are a predictable line item. If you own the business? You’re a wild card. A liability.
When the tax returns lie…
Numbers don’t talk. But they definitely whisper things to underwriters that you might not like. You see, your accountant’s job is to make your income look as small as possible to the IRS. That’s great for April 15th. It’s a total nightmare when you want a backyard and a thirty-year fixed rate. The lender looks at the “bottom line” on your Schedule C or your K-1.
Total disaster.
Most folks think their gross revenue is what counts. It isn’t. The lender wants to see the net. They want to see what is left over after you’ve deducted that “home office” that is actually just a corner of your living room and those “business meals” at the steakhouse.
Two years or bust?
Tradition dictates the rules. Most lenders demand two full years of self-employment history before they even look at you. They want to see stability. Consistency. Growth. If you had a killer 2024 but a rocky 2025, they’re going to average those numbers down. It feels unfair. Actually, it is unfair. But that is the game we are playing here.
Wait—I should mention. Some non-QM (non-qualified mortgage) lenders are getting looser with this, but you’ll pay for it in the interest rate. It’s a trade-off.
Debt-to-income is the killer
The ratio matters most. You take your monthly net income and compare it to your proposed housing payment. Simple. Except it’s never simple. If you bought a truck under the business name but you’re personally liable for the note, that counts against you.
Every. Single. Penny.
I’ve seen deals die over a $400 car payment that the borrower forgot to mention because “the business pays for it.” Trust me, the lender doesn’t care who writes the check if your social security number is on the dotted line.
Documentation is a nightmare
Paperwork everywhere. You’ll need 1040s, 1120-S forms, P&L statements, and probably a blood sample at this rate. Just kidding about the blood. Mostly. You have to be organized or you will lose your mind. Lenders are looking for “large deposits” that aren’t explained. They want to see that your business has “liquidity,” which is just a fancy way of saying you aren’t broke.
It’s a lot.
(Note: Make sure the P&L matches the bank statements or they will flag the whole file for fraud review.)
Why the underwriter stares…
They are looking for “declining income.” This is the kiss of death. If you made $100k two years ago and $80k last year, the underwriter assumes you’ll make $60k this year. They are pessimistic by nature. It’s their job to find reasons to say no. You have to give them every reason to say yes.
Ugh, it’s exhausting.
You have to explain away every dip. Maybe you took a month off. Maybe you invested in new equipment. Whatever it is, you need a “letter of explanation” that sounds professional and not like a desperate plea for mercy.
Adding back the “good” stuff
Not all deductions are bad. This is where a seasoned pro earns their keep. Depreciation is a “paper loss.” It’s a gift. Lenders can often add that back to your income because it didn’t actually cost you cash out of pocket this year. Same goes for some one-time expenses or large capital investments.
The math works.
If you have a good loan officer, they will dig through your returns to find every cent of “add-back” income possible. It’s like a treasure hunt, but with much higher stakes and more spreadsheets.
A few final thoughts
Look, being your own boss is the American dream, but the mortgage industry is still stuck in 1955. You have to be prepared to prove your worth three times over. It’s a long road. It’s a hard road. But it’s doable if you stop trying to hide your money from the government for at least twenty-four months before you buy.
~~I think this covers most of the basics.~~ Actually, let’s be real: just hire a specialist. Don’t go to a big retail bank that only handles easy W-2 files. You need someone who knows how to read a corporate tax return without getting a migraine.
Give me a shout if you need a recommendation for a broker who won’t hang up on you.
Handwritten-style note: Make sure they check the 4506-C form twice, I’ve seen those stall closings for weeks because of a typo in the address!
