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Understanding HELOCs for the Self-Employed
A Home Equity Line of Credit (HELOC) is a flexible financing option that allows homeowners to borrow against the equity in their property. For self-employed borrowers—especially those with irregular or complex income streams—qualifying for a HELOC can present unique challenges.
Unlike traditional salaried applicants, self-employed individuals must provide more extensive documentation and meet stricter income verification standards. Lenders want to ensure that your income, though variable, is stable enough to repay the line of credit.
Key HELOC Requirements for Self-Employed Borrowers
1. Proof of Stable Income
Lenders typically require two years of consistent self-employment income. You’ll need to provide:
- Personal and business tax returns (last 2 years)
- Profit and loss statements (P&L)
- Balance sheets
- Bank statements (typically 3–6 months)
Tip: Be prepared to explain large fluctuations in income year-over-year.
2. Debt-to-Income Ratio (DTI)
Your DTI helps lenders evaluate your ability to repay debts. Most lenders prefer a DTI under 43%, although some may allow up to 50% if you have strong compensating factors like significant home equity or high credit scores.
3. Credit Score Requirements
For most HELOCs, a minimum credit score of 620–680 is required. However, a 700+ score can unlock better interest rates and higher credit limits.
4. Sufficient Home Equity
Typically, you must retain at least 15%–20% equity in your home after drawing on your HELOC. This means you can borrow up to 80%–85% of your home’s appraised value, minus your current mortgage balance.
5. Business Verification
If you own a business, lenders may ask for:
- Articles of incorporation or business license
- Letters from a CPA verifying self-employment status
- Business insurance documents
Tips to Strengthen Your HELOC Application
- Improve Credit: Pay down existing debt and resolve any delinquencies.
- Organize Finances: Use accounting software or hire a CPA to maintain clear records.
- Build Reserves: Having cash reserves signals financial stability to lenders.
- Co-Borrower Option: Consider applying with a spouse or partner with W-2 income to help balance the application.
Need help preparing your HELOC documents? Contact our mortgage advisors today for a free consultation.
Want to see how much equity you can tap into? Use our free HELOC calculator.
Looking for self-employed mortgage options? Explore all loan types for entrepreneurs.
Frequently Asked Questions (FAQ)
Can I use my business income for a HELOC?
Yes, but it must be verifiable. Lenders will review tax returns, profit and loss statements, and bank records to determine the consistency and legitimacy of your business income.
What if my income fluctuates a lot?
Fluctuations are common for self-employed borrowers. Providing a longer income history or averaging multiple years of earnings can help demonstrate stability.
Do lenders consider gross or net income?
Lenders primarily evaluate net income after business expenses. Write-offs can significantly reduce your qualifying income.
Read Next
If you’re navigating financing as a self-employed borrower, check out these helpful guides:
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
