Self-Employed Mortgage FAQs

Self‑employed borrowers in Michigan often struggle to understand how lenders review tax returns, bank deposits, and business deductions. This page breaks down the exact rules lenders use so business owners, 1099 contractors, and real estate investors know how mortgage qualification really works.

1. Can I qualify for a mortgage if my taxable income is low because of business write‑offs?

Short answer: Yes, but traditional loan programs will limit you because they rely on taxable income. Alternative options—like bank-statement loans—may work better, but they require a larger down payment and have higher interest rates.

Deep dive:

Traditional loans use taxable income from your tax returns.
Lenders may add back things like depreciation, depletion, and one-time expenses.
Everyday write-offs lower your qualifying income and can’t be added back.
Bank-statement loans use cash flow from deposits instead of taxable income, but they usually come with higher interest rates and larger down payments.

2. How long do you need to be self‑employed to get approved for a home loan?

Short answer: Most lenders want 2 full years, but exceptions exist if you're in the same line of work or have strong documentation.

Standard: about 24 months in business.
Possible exceptions: 12–24 months plus prior W-2 income in the same field.
Bank-statement programs can help when tax returns don’t show enough income.

3. What documents do self‑employed borrowers need for a mortgage in Michigan?

Short answer: Expect to provide 2 years of personal and business tax returns plus recent bank statements.

2 years of personal tax returns.
2 years of business returns if you own 25% or more.
Recent bank statements showing down payment and reserves.

4. How does being self‑employed affect the mortgage rate and down payment?

Short answer: If you qualify with tax-return income, being self-employed doesn’t hurt your rate or down payment. If you need a bank-statement loan, expect a higher rate and larger down payment.

Rates depend on your credit and loan-to-value—not your job title.
When tax returns don’t show enough income, alternative loans may be needed — but they come with higher rates and larger required down payments.

5. What is a bank‑statement mortgage and how does it work?

Short answer: These loans use 12–24 months of bank deposits to estimate your income instead of tax returns.

Good for borrowers with heavy write-offs.
Income is calculated from average deposits minus an expense factor.
They usually come with higher rates, larger down payments, and stricter reserve requirements.

6. How do lenders calculate rental income for mortgage approval?

Short answer: Lenders look at whether the rent covers the full payment (PITIA). If the property brings in more than it costs, it strengthens your file; if it brings in less, it works against you.

PITIA includes principal, interest, taxes, insurance, and HOA dues.
Bottom line: positive cash flow helps; negative cash flow hurts.

Why this matters: These guidelines apply to most lenders in Michigan, whether you file as a sole proprietor, LLC, S‑corp, or partnership. While each lender has its own underwriting quirks, the core rules around tax‑return income, bank‑statement qualification, rental‑income calculations, and credit requirements follow the same structure. If you're self‑employed and want to know exactly what you qualify for, the fastest way is to review your last two years of returns alongside recent business and personal bank deposits.