Can I Get a Conventional Loan If I Am Self-Employed?

Being self-employed does not disqualify you from a conventional loan — but it does add complexity to the documentation process. Here is exactly what lenders look for and how to position yourself for approval.

Who is considered self-employed?

Under Fannie Mae and Freddie Mac guidelines, any borrower with a 25% or greater ownership interest in a business is considered self-employed. This includes sole proprietors, LLC members, S-corporation shareholders, and partners in a partnership. Independent contractors who file a Schedule C are also treated as self-employed.

The two-year history requirement

Fannie Mae generally requires a two-year history of self-employment income to use it for qualifying — two years of personal tax returns and usually two years of business returns. However, a one-year exception is available when the business has been in existence for at least five consecutive years and the borrower has had 25% or more ownership for five or more years consecutively.

Freddie Mac and some lenders also allow a 12–24 month self-employment history when the borrower has a documented two-year prior income history in the same or similar occupation — for example, a physician who recently opened a private practice after working as a hospital employee.

Required documentation

• Two years of signed personal federal tax returns (all schedules)
• Two years of business tax returns (Form 1065, 1120S, or 1120 as applicable)
• Year-to-date profit and loss statement
• Signed IRS Form 4506-C authorizing tax transcript verification
• Business license or CPA letter confirming active business (in some cases)

How qualifying income is calculated

Lenders perform a cash flow analysis using IRS Form 1084 or equivalent. Non-cash expenses (depreciation, depletion, amortization) are added back to the net income shown on tax returns. Business losses must be deducted. If income is declining year over year, lenders must use the lower of the two years — or may flag income instability.