Five Steps for the Self Employed to Secure a Mortgage or to Refinance

Real Estate Agent with Coldwell Banker Residential Brokerage 01845539

Five Steps for the Self Employed to Secure a Mortgage or to Refinance

North San Diego County home sellersMSN ran this article a few months ago, but it's definitely a topic that is always relevant so I thought I'd share the post. If you are among the thousands of Americans who are self employed and are looking to buy a home, here are five important steps to take.

1. Good credit All borrowers today need good credit, with a minimum score of 620 or 640 for a Federal Housing Administration loan (minimum score depends on the loan) and a score of 740 or higher to be offered the best mortgage rates for a conventional loan. Some lenders consider self-employment income a higher risk than regular paychecks, so a higher credit score can offset your potential risk factors and give a lender greater confidence when considering you for a loan.

Related: Mortgage rates are on the rise!

2. Low debt-to-income ratio
Lenders typically like to see an overall debt-to-income ratio of 41% or less, although borrowers with other compensating factors may qualify for a mortgage with a ratio as high as 45%. You can use a mortgage calculator to estimate your housing costs along with your other debt. Paying off some bills to reduce your debt-to-income ratio can be another compensating factor in your favor.

3. Income
Many self-employed individuals reduce their income for tax purposes by deducting business expenses. Be aware that your income for a mortgage loan will come from your tax returns. So if your income is too low, you may qualify for a smaller mortgage amount than you thought. Your income will usually be the average of your two most recent tax returns. Even if you made more money this year than last year, it may not matter to your lender. Lenders often require a quarterly profit-and-loss statement in addition to your most recent tax returns. New rules from the FHA say that self-employed borrowers are required to prove their ongoing income in the form of a year-to-date profit-and-loss statement if more than one quarter has passed since the last tax return was filed.

Related: How do rising interest rates affect you?

4. Assets
If you are refinancing, your mortgage will be based on the amount of your home equity. If you, like many other homeowners, experienced declining home values in your area, you may want to consider a "cash-in" refinance. A cash-in refinance builds your home equity faster and, if you are underwater on your home loan, can bring you back above water. If you're buying a home, a bigger down payment can make it easier to qualify for a mortgage, since the loan amount will be smaller.

5. Reserves
The rules about how much you need to have in cash reserves vary from one lender to another and for different mortgage products, but you should have at least two months of housing payments (principal, interest, taxes and insurance) in the bank to protect yourself in an emergency. Lenders particularly need to know that self-employed borrowers, whose income often fluctuates more than regular employees, can handle their finances and have savings.

Related: Is it time to Refinance?

Even with good credit and sufficient assets, you'll find that even the best mortgage lenders will require you to produce your tax returns and possibly a quarterly profit-and-loss statement to show that you have sufficient income to make your mortgage payments. Be prepared to deliver on these requests. Also, be prepared to hit a few hurdles. It is common for loan applicants in general to have to jump through a few hoops to qualify for a mortgage, but if you're self-employed you may have a few more hoops than others.

Related: Start your North San Diego County home search TODAY!

Thank you very much for reading my blog! I hope you found it helpful. If you enjoyed reading this, please let me know by adding a comment below or sending me an email. If you have any additional questions please submit those as well and you may see them on a future blog post.

Here are a few additional articles you may find useful!

1. When Does the Home Buying Process Actually Begin?

2. San Diego County Home Prices Continue to Surge

3. Increase your home value with an exterior replacement project!

Casey Cooke North County Real Estate

Thinking of selling your North County Home? My team of experienced professionals can help you whether in Carlsbad, Vista, Oceanside, San Marcos, Escondido, or elsewhere in North County. We specialize is helping sellers sell their North San Diego County homes for top dollar with minimal stress and hassle. Call me directly at 760-216-6604 or email me at

When we talk, I will explain the process in detail and answer any questions you may have. Then we get busy right away marketing your home with professional photos, video tours, high quality print materials, and much much more! If you or someone you know is thinking of selling their home in North San Diego County, you own it to yourself to check out the #1 Realtor at Coldwell Banker in Vista Village, Casey Cooke!

Thank you for reading this, I hope I have been helpful!

Casey Cooke is a licensed Real Estate agent at Coldwell Banker in Vista Village, License#01845539. Phone: (760)

Comments (4)

Alan Kirkpatrick
Austin Texas Homes - Round Rock, TX
Alan in Austin


Very nice post and great information. Thanks for sharing. Have a great week. 

Apr 02, 2013 02:45 PM
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Casey, great info - and I did look at #3 more carefully as I work with self-employed buyers (and they don't show much income).

Is there a way to show some 'additional' income for them?

Apr 02, 2013 02:50 PM
Casey Cooke
Coldwell Banker Residential Brokerage - San Diego, CA
Vista Realtor
Thx for the comments. Are you guys struggling with appraisals? We sure are here in San Diego, the prices are going up rapidly but the appraisers have not yet received the message. ;-)
Apr 02, 2013 03:00 PM
Ronald DiLalla
Century 21 Discovery DRE 01813824 - Anaheim, CA
No. Orange Cty Real Estate

HI Casey,   great post with lots of info...Thanks for sharing with us in Active Rain Land.

Apr 02, 2013 04:23 PM