Self-Employed Loans
Mortgage options for self-employed borrowers — because tax returns do not tell the whole story.
You built a successful business, but your tax returns show a fraction of what you actually earn. Write-offs, depreciation, and business expenses reduce your taxable income — which is smart for taxes but makes qualifying for a traditional mortgage difficult. We specialize in helping self-employed borrowers across New Jersey and eastern Pennsylvania find the right loan program, whether that is a bank statement loan, a 1099 program, or traditional financing with the right preparation.
Why self-employed borrowers face different challenges
Traditional mortgage underwriting was built for W-2 employees. You submit pay stubs, your employer confirms your salary, and the lender calculates what you can afford. Simple.
Self-employed borrowers do not fit that model. Your income might fluctuate seasonally, you might pay yourself differently each month, and your tax returns — after legitimate deductions for business expenses, vehicle, home office, depreciation, and retirement contributions — show a net income far below what you actually bring in. A business owner earning $200,000 in revenue might show $80,000 on their tax return after write-offs. That is not fraud, that is smart tax planning. But a traditional lender sees $80,000 and underwrites accordingly.
The solution is matching you with the right loan program — one that looks at your actual cash flow, not just your taxable income.
Loan programs for self-employed borrowers
Bank statement loans
Bank statement loans are the most popular option for self-employed borrowers who cannot qualify using tax returns. Instead of W-2s and 1040s, the lender reviews 12 to 24 months of personal or business bank statements and calculates your income based on average monthly deposits. No tax returns required. No employer verification. Your bank statements tell the real story of your cash flow.
The lender totals your deposits over 12 or 24 months and divides by the number of months to get average monthly income. For business bank statements, an expense factor (typically 50%) is applied — so if your average monthly deposits are $30,000, the lender counts $15,000 as qualifying income. Personal bank statements use 100% of deposits. Some industries with higher expenses (restaurants, construction) may use a 60% to 70% expense factor.
Best for: Business owners, freelancers, independent contractors, gig workers, and consultants with strong cash flow but tax returns that understate their income.
1099 income loans
If you receive 1099 forms from clients (common for independent contractors, real estate agents, consultants, and freelancers), 1099 income programs use one to two years of 1099s to document your earnings. This is simpler than bank statement programs because the income is already documented by your clients. No full tax returns needed — just the 1099 forms themselves.
Best for: Independent contractors and freelancers who receive 1099-NEC or 1099-MISC forms and want a simpler documentation path than bank statements.
Profit and loss (P&L) statement loans
Some non-QM lenders accept a CPA-prepared profit and loss statement as the primary income document. Your accountant prepares a P&L showing your business revenue, expenses, and net income — and the lender uses that figure for qualification. This works well for borrowers whose bank statements are messy (mixing personal and business funds) but whose accountant can produce clean financials.
Traditional full-doc (tax return) loans
Self-employed borrowers can absolutely qualify for conventional, FHA, and VA loans — you just need to understand how lenders calculate your income from tax returns. The lender averages your net income from the last 2 years of returns. For sole proprietors, that is Schedule C net profit. For S-corp owners, it is your W-2 salary plus K-1 distributions minus certain deductions. For partnerships, it is your K-1 income.
The advantage of full-doc is the best rates and lowest costs — conventional and FHA rates are significantly lower than bank statement loan rates. The tradeoff is that your qualifying income is limited to what your tax returns show.
Pro tip: We review your tax returns before you file so you understand the tradeoff between write-offs and mortgage qualification. Sometimes a small adjustment in how you take deductions can increase your qualifying income by $20,000 to $40,000 without significantly changing your tax bill.
Asset depletion loans
If you have significant liquid assets (savings, investments, retirement accounts) but limited documentable income, asset depletion programs calculate a monthly income figure by dividing your total assets over a set period (typically 60 to 84 months). For example, $500,000 in liquid assets divided by 60 months equals $8,333 per month in qualifying income. This works well for recently retired business owners, high-net-worth individuals, or those living off investments.
How to prepare for a self-employed mortgage
Preparation is the difference between a smooth closing and a frustrating denial. Here is what to do 3 to 6 months before you plan to buy or refinance.
Separate personal and business bank accounts
If you are using bank statement loans, clean bank statements make underwriting faster. Mixing personal and business funds in one account creates questions about which deposits are income versus transfers. Separate accounts give the lender a clear picture.
Keep consistent deposits
Lenders look for consistent monthly deposits. Large irregular deposits (a $50,000 lump sum followed by three months of $2,000) raise questions and may need to be explained with documentation. If your income is naturally lumpy, 24-month bank statements smooth out the average better than 12-month.
Talk to us before you file taxes
If you plan to use traditional full-doc financing, we should review your returns before you file. Your CPA optimizes for tax savings, but aggressive write-offs can disqualify you from the loan amount you need. A quick review lets you make an informed decision about the tradeoff between saving $3,000 in taxes and qualifying for $50,000 more in mortgage.
Maintain strong credit
Bank statement and non-QM loans are more rate-sensitive to credit score than conventional loans. The difference between a 680 and a 740 score on a bank statement loan can be 0.5% to 1% in rate — which on a $400,000 loan is $160 to $330 per month. Pay down credit card balances below 30% of limits and avoid opening new accounts before applying.
Get your CPA letter and business license ready
Most self-employed loan programs require a letter from your CPA confirming you have been in business for at least 2 years, plus a copy of your business license. Having these ready before you apply prevents delays.
Self-employed borrowers in New Jersey and Pennsylvania
NJ has a large self-employed population
New Jersey ranks among the top states for self-employment, with hundreds of thousands of small business owners, freelancers, and independent contractors. From contractors and landscapers in South Jersey to consultants and tech workers commuting to NYC, the self-employed market is large and underserved by traditional lenders. We understand the local business landscape and the income documentation challenges specific to NJ entrepreneurs.
High home prices make the right program critical
With NJ median home prices above $525,000 and many desirable areas well above that, self-employed borrowers need to qualify for larger loan amounts. The difference between using tax return income ($80,000) and bank statement income ($150,000) can be the difference between qualifying for a $300,000 loan and a $550,000 loan. Choosing the right program is not a nice-to-have — it determines whether you can buy the home you want.
PA offers lower entry points
Eastern Pennsylvania — Bucks, Montgomery, Chester, and Delaware counties — offers lower home prices and property taxes than NJ, which means lower qualifying thresholds for self-employed buyers. A self-employed borrower who cannot quite qualify for a $500,000 home in NJ might comfortably qualify for a $400,000 home in PA with the same income documentation.
Down payment assistance still applies
If you qualify for traditional FHA financing using tax returns, you can still access NJHMFA assistance (up to $22,000) or PHFA programs in Pennsylvania (K-FIT up to 5% of purchase price). Bank statement loans do not pair with government DPA programs, but the higher qualifying income often offsets the need for assistance.
Common self-employed scenarios
Classic bank statement loan candidate. Using 12 or 24 months of business bank statements with a 50% expense factor, your qualifying income would be roughly $90,000 — enough to significantly increase your buying power compared to using tax returns.
Most bank statement programs require 2 years of self-employment history. If you are close but not there yet, we can explore options: if you were in the same industry as a W-2 employee before going independent, some lenders count that toward the 2-year requirement. Otherwise, waiting a few months to hit the 2-year mark is usually the smartest play.
1099 income programs are the simplest path — provide your 1099 forms and qualify based on that documented income. If your 1099 income is sufficient, this avoids the higher rates of bank statement loans entirely. If it is not enough, we can layer in bank statements to capture additional income.
We can combine income sources. Your spouse qualifies traditionally with W-2 income, and your self-employed income is added using whichever documentation method works best — tax returns, bank statements, or 1099s. The W-2 income often anchors the deal and your self-employed income pushes the qualification higher.
If you are a self-employed investor, DSCR loans may be a better fit than bank statement loans for investment properties. DSCR qualifies on the rental property cash flow — no personal income documentation at all. For your primary residence, bank statement or 1099 programs work. We often structure deals where the primary home uses bank statements and investment properties use DSCR.
Bank statement loans work for refinances too — rate-and-term and cash-out. If you are sitting on equity but your tax returns prevent you from qualifying conventionally, a bank statement refinance lets you access that equity or lower your rate using your actual cash flow as qualification.
Frequently asked questions
Yes. Self-employed borrowers qualify for conventional, FHA, VA, and non-QM loans. The documentation is different — tax returns for traditional loans, bank statements or 1099s for non-QM — but the same loan programs are available.
Most programs require 2 years. Some lenders accept less if you were previously employed in the same industry. Traditional loans (conventional, FHA) can sometimes work with 1 year of self-employment if the income trend is stable or increasing.
Bank statement loan rates are typically 1% to 2% higher than conventional rates. On a $400,000 loan, that is roughly $250 to $500 more per month. The tradeoff is qualifying for a significantly larger loan amount based on your actual cash flow.
Either works, but they are calculated differently. Personal bank statements use 100% of deposits as income. Business bank statements apply an expense factor (typically 50%) since not all deposits are profit. We help you determine which approach results in higher qualifying income for your situation.
Bank statement loans are non-QM products and do not pair with government DPA programs like NJHMFA or PHFA. However, if your tax return income supports FHA qualification, you can use traditional FHA with full DPA benefits. We compare both paths to find the best total cost.
Yes — and talk to us first. We review your tax situation and help you and your CPA understand how deductions affect your mortgage qualification. A small adjustment before filing can make a significant difference in what you qualify for.
Self-employed? Let us figure out your best path.
Every self-employed borrower is different. We will review your income documentation, compare program options, and give you a clear recommendation — not a runaround.