Mortgages for 1-Year Self-Employed Tips

You may have heard that you can’t get a mortgage with less than 2 years of self-employment.

That’s simply false.

Those with as little as 1 year of self-employment can be approved. If you’re self-employed less than 1 year, you may have options, too.

Here’s how to buy or refinance if you’re newly self-employed.

Non-QM bank statement loan

More lenders are emerging that let you use bank statements only to prove your income. And some of them allow you to be self-employed just 1 year.

These lenders don’t want to see tax returns at all. You supply as few as 12 months of bank statements. They average that income and apply a reduction factor depending on your business type, typically 30-80%.

For example, if you had $100,000 in deposits over the past 12 months, your qualifying income could be $70,000.

If you don’t quite have 1 year of self-employment yet, you could apply now so that when you do hit 1 year, you can be approved.

Here are common terms for a 1-year self-employed mortgage.

• No tax returns required
• Bank statements only
• Must be self-employed
• 660 credit
• 20% down or 20% equity in the home

No-Doc Loans

Another Non-QM option is a No-Doc loan. 

These loans do not look at income or employment at all. Rather, they are approved based on the down payment, credit score, and cash reserves.

For instance, if you have 20-25% down, a 680+ score, and 12-15 months of payments in the bank after closing, you might be approved even with less than 1 year of self-employment.

Here’s how this might work.

8% rate (example only), $500/mo taxes/insurance/HOA

No-doc lenders know that someone with substantial reserves likely has a stable income source and is not likely to default.

1 year of self-employment for FHA

FHA allows 1 year of self-employment if you have two years of experience in the same line of work in a previous W2 job.

This scenario works well for W2 employees who changed to contract work and now receive a 1099.

For instance, you were employed as a web developer for five years. You then switched to a contract web developer for the same or different company. The lender could make the case that you have similar experience prior to becoming self-employed.

Always run your scenario by a lender and have them do a full underwrite of your file before shopping for a home.

If you’re approved for FHA, you could buy a home with just 3.5% down.

USDA home loans with 1 year of self-employment

USDA home loans are strict about the 2-year self-employment rule. It will not approve borrowers with less than two years of signed tax returns proving self-employed income.

VA loans with 1 year of self-employment

VA loans are a bit more lenient on self-employment than USDA. Like FHA, the lender might approve a self-employed individual who has at least 1 year of self-employment plus two years of experience in the same line of work. 

Those with less than 1 year of self-employment can “rarely qualify” according to VA rules. However, lenders are permitted to present an in-depth case as to why your income might be stable, so it’s worth applying.

VA loans are only available to those with eligible military service.

Conventional lending

Fannie Mae can consider applicants with between 1 and 2 years of self-employment. Your current business needs to be in the same field as your previous employment and you must be making the same or more than before.

Preferred 1-year self-employed lender

• Self-employed mortgage programs
• Refi, Cash-Out Refi, and Purchase
• Primary, Second, Investment Homes
• No tax returns

Get Qualified

Other strategies for mortgage approval with less than 1 year self-employment

Here are some ideas if you are recently self-employed

Wait a bit longer

You might be 8 or 9 months into self-employment. In that case, wait a couple months. Apply before the 12-month mark. Get an idea from the lender about what you’ll need. You might discover things you can be working on now to improve your chances of approval.

Build your credit

The higher your credit score, the less down payment and cash reserves you’ll need for many Non-QM products that allow 1 year of self-employment.

Save cash reserves

You’re more likely to get approved for a mortgage with less than 1 year of self employment if you have at least a 20% down payment and 12 months of full payments in reserve after closing.

Become a W2 employee

You always have the option to get a W2 job in the same line of work. You may be approved by submitting your offer letter and first pay stub to the lender. It would require you giving up your self-employed business for a time, but it’s worth considering if homeownership is your top priority.

Mortgage with 1 year of self-employment or less: totally possible 

You may have thought that you are not mortgage-eligible without two years signed tax returns, but luckily that’s not the case. You don’t have to wait 2-3 years until you’ve been in business long enough to file taxes for that second year.

New programs and strategies let you buy a home much sooner.