Self Employed Home Loans for Michiganders
Can I get a loan if I’m self-employed?
Yes, absolutely! They’re not as difficult as you think, especially with our team on your side. Whether you’re a creator, freelancer, business owner, or rideshare driver, there is nothing to fear when buying a home with Michigan self-employment.
The main difference between W2 and self-employed 1099 income is how you document the income on a mortgage application. The focus of 1099 self-employed home loan documentation is the proof of income stability.
Lenders who are accustomed to consistent paystubs and routine employment are wary of 1099s and seasonal income. At Treadstone, however, we love the diversification and creativity of self-employed income. We’ve done countless self-employed home loans, so they don’t bother us!
Self-Employed Home Loan Requirements
Here are the documents we’ll need to start a mortgage for self-employed borrowers:
- Business license and third-party verification
- 2-3 months’ bank statements
- Two years of tax returns (1040s)
- Year-to-date profit and loss statement
Why do we need these documents for mortgage qualification?
Your business license is the “proof of employment” for business owners, a requirement for all home loans. This lets us know that your income structure is legal and legitimate, and also explains the nature and location of your business. Not a business owner? No problem! We’ll just need to do an employment verification for the source of your 1099 documents, usually by phone call to your client/employer.
Bank statements from your personal and business accounts prove you have the funds available to pay for a down payment and closing costs. These documents also show your active income & expenses.
Like the bank statements, year-to-date profit and loss statements show the financial strength of your income and prove it is active. While high revenue is great, your take-home pay and general business profit is most important in calculating your qualification. Budgets are just as important in business as they are in personal finance.
Tax returns prove your longer-term income! These documents give us an accurate look into the stability of the income sourced from your business. We ask for these documents for all home loans— not just mortgages for self-employed home buyers.
Qualifying for a mortgage when self-employed in Michigan
When qualifying for a loan in Michigan as an independent contractor, you’ll need to show proof of active, steady, and reliable income. Generally, we’ll need two full years of income to properly qualify you for a home loan.
Regardless of your income this month, Michigan lenders need to consider the previous two calendar years of your income. To determine your monthly income (an important figure for determining loan eligibility), we take a monthly average of the most recent 24 months of your income (all income divided by 24). If you have been self-employed for less than two full years, we’ll work closely with you to determine eligibility! Don’t sweat it.
Overall, we look for income consistency, business stability, and strong cash flow.
Tips to prepare for when applying for your home loan
When we say “document everything”, we really mean it. Since mortgage applications for self-employed workers are slightly more involved than traditional loans, we may need additional documents. You should keep on file:
- Legal documents
- Income documentation
- Payment sources & destinations
Keep business and personal expenses separate
This is advice your accountant may also give, but we love records of all types— including broken ones! If you’re a freelancer or business owner, you’ll want to keep your finances clean by tracking business & personal expenses separately.
Dot the i’s and cross the t’s
Talk to your accountant (and we recommend getting one if you don’t already). Their tips, guidance, and assistance are important in the home-buying process. They’ll take a lot of stress away!
One of the documents that may come in handy is a letter from your accountant (a certified public accountant, that is) confirming your paperwork is legitimate and legal. This makes your self-employed home loan application easier!
You should also discuss write-offs and keep track of your depreciating assets with your accountant. They may be able to save you money during tax season and keep you organized!
Get a Self-Employed home loan
Frequently Asked Questions
Is it hard to get a home loan if you are self-employed?
It may be harder to get a mortgage if you’re self-employed. You may need to provide more documentation than someone who has had the same W-2 employment. Some lenders do not work with self-employed individuals because of the increased underwriting requirements, but Treadstone is not one of them! We’re happy to guide you through the self-employed home loan process!
How many years do I need to be self-employed to get a mortgage?
Treadstone asks for at least two years’ worth of accounts detailing income, expenses, and operating costs to fully approve a self-employed mortgage application. All scenarios are different, but it typically means working for two years with steady income. The most important factor in your mortgage is the monthly debt-to-income ratio, which is a simple way of comparing your monthly income to your monthly debt, to ensure you’re able to adequately pay for your new home.
What do mortgage lenders look for in self-employed homebuyers?
Mortgage lenders in Michigan look for proof of long-lasting, stable cash flow. Being self-employed should not stop you from buying a home! If your income is steady, and you can prove it with two years of documentation, you may be eligible!
How to calculate home loan eligibility for self-employed?
Lenders (like Treadstone) will consider your gross monthly income (after expenses, before taxes), averaged out over the last 24 months! If the last 24 months of income has been steady, your credit profile is healthy, and your debt-to-income ratio is low, you may be eligible for a home loan! That said, our Loan Officers will consider all aspects of your situation and give you a definite answer!
Are you a realtor looking to buy?
Real Estate Agents may use their commission as a down payment source provided they are licensed and the property is being purchased by them!
Treadstone can use your earned real estate commission as an eligible source of funds for down payment and closing costs provided your are a licensed real estate agent and will receive a sales commission from the purchase of the property.
Have more questions? Contact your Loan Officer!