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How to Qualify for a Mortgage When You’re Newly Self-Employed

A while ago, we wrote about getting a mortgage when you’re self-employed. In that article, we focused on small business owners who had been self-employed for at least two years. However, not everyone is in that financial position. In this article, we’ll discuss how to get a mortgage when you’re newly self-employed (less than two years).

self employed

Newly Self-Employed in a Similar Industry

It’s pretty common these days for someone to go from being a salaried employee to being self-employed. Your employer may offer you the opportunity to do it, or you may choose to do it yourself.

The good news from a mortgage respective is that you don’t need to provide two years of tax returns being self-employed, as long as you are working in the same industry, doing a similar role. If that’s the case, mortgage lenders are often okay with only one tax return from being newly self-employed.

Self-Employed in a New Industry

If you’re self-employed in a new industry, the lender will want to see more documentation before approving your mortgage application. That’s because you don’t yet have a proven track record.

In addition to the documents lender typically want to see for self-employed individuals (business licenses, invoices, etc.), the lender will also want to see 6 or 12 months of bank statements under a stated income program.

A stated income program is as it sounds—a program where you choose how much income to include. However, the lender doesn’t just take your word for it. The lender will review the bank statements you provide to make sure it’s reasonable.

The lender adds up all of your deposits for revenue and subtracts your debts for expenses. It uses this to make sure what you are stating makes sense.

There’s actually a specific program with the mortgage insurers for newly self-employed people. You can qualify by putting as little as 5% down on a home.

Buying a Rental Property or Cottage When You’re Newly Self-Employed

The stated income program I describe above (Business for Self, Alt. A) is for those buying a primary residence. However, if you want to buy a cottage or rental property, that program won’t work. It’s only for primary residences.

If you haven’t yet been in business for two years or claimed enough income to qualify, you could go with a stated income program with an alternative lender. Keep in mind that the rates will be higher, and there will be additional fees, but at least it will get the job done now, so it might be worth it.

The Bottom Line

Are you newly self-employed and you’re looking for help getting a mortgage? We can help. Contact us today. Our mortgage experts would be happy to give you a helping hand.

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