What to Tell Your Self-Employed Customers About Qualifying for a Home Mortgage

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September 22, 2021 | By RGR Marketing Blog

What to Tell Your Self-Employed Customers About Qualifying for a Home Mortgage

There is a common misconception that self-employed customers have a harder time qualifying for mortgages. The truth is there are not necessarily any special requirements that make it more difficult for self-employed people to get a mortgage. They can qualify for and obtain a mortgage just like borrowers who are employed in traditional payroll jobs.

Still, as a mortgage professional, you probably receive a lot of questions about qualification requirements from your self-employed clients. Here is what you should be telling them, so they can be as prepared as they can be for qualifying for the home mortgage product they want.

Self-Employed Mortgage Qualifications

Every self-employed mortgage borrower is held to the same standards for credit, debt, down payment, and income as other, traditionally employed applicants. But depending on the type of loan being applied for, these standards can be significantly different.

For instance, if your client is applying for a conventional loan, then the minimum credit score requirement will usually be 640. But, if they are applying for a loan that is backed by the federal government, like an FHA, VA, or USDA loan, then they may be able to get approved with a score as low as 620, or even 580 in some cases.

The same difference can be seen in the debt-to-income ratio needed to qualify for these loans. To qualify for a conventional loan through Fannie Mae or Freddie Mac, the highest DTI allowable is 50%, but for the highest chance at approval, a borrower should keep their DTI to 45% or under. The highest DTI allowable with an FHA loan is 57%, but the ideal range is below 45%. Meanwhile, for a VA loan, a borrower can have a DTI as high as 60% with a fixed-rate loan (50% maximum for an ARM).

The minimum down payment required for these loans can also differ. To qualify for a conventional mortgage, the borrower needs to be put at least 3% down (or 20% to avoid paying private mortgage insurance, or PMI). FHA loans can be obtained with as little as 3.5% down, but this will require the borrower to pay PMI as well until they reach 20% equity in their home. With a VA loan, no money is required to be put down on the home, but the buyer is charged a funding fee which they can pay upfront, at closing, or have rolled into their mortgage.

What’s the Biggest Difference for Self-Employed Home Buyers?

The biggest, and really only difference between a payroll employee borrower and a self-employed borrower is in the income documentation required to qualify for the mortgage of their choice. For a self-employed borrower to qualify for a mortgage, they need to be able to provide the following documents with their application:

Two years of personal tax returns
Two years of business tax returns including schedules K-1, 1120, 1120S
Copy of business license
Year-to-date profit and loss statement (P&L)
Balance sheet
Signed CPA letter stating they are still in business

Two years of tax records is required because self-employed income can vary from month-to-month and being able to show that their income is regular and reliable is one of the most important things lenders want to see.

Interested in Self-Employed Mortgage Leads? Try RGR Marketing Today

Today, there are more self-employed professionals applying for home mortgages than ever. If you want to increase your presence in the self-employed sector, RGR Marketing can help. We have more than 20 years of experience providing loan officers with targeted and verified mortgage leads. We can provide you with a list of self-employed mortgage leads that have pre-scanned for accuracy, so you do not have to worry about things like missing details, incorrect contact information, or duplicate leads.

We curate our leads using our own proprietary technology, which matches you with leads based on your unique target demographics. As a result, the leads you receive provide you with the best sales opportunities. If you want to increase mortgage sales within the self-employed sector, then contact RGR Marketing today.

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What to Tell Your Self-Employed Customers About Qualifying for a Home Mortgage

Self-Employed Mortgage Qualifications

What’s the Biggest Difference for Self-Employed Home Buyers?

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What to Tell Your Self-Employed Customers About Qualifying for a Home Mortgage

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