If you’ve recently started working for yourself, you may have heard that you need two full years of self-employment before you can get a mortgage. That isn’t always the case.

Depending on the loan and your circumstances, self-employment income with a shorter history may still be considered. But reaching the one-year mark doesn’t automatically mean you’ll qualify either.

I’ve spoken to business owners who assumed they had to put their homebuying plans on hold simply because they hadn’t been self-employed for two years. Before making that decision, it’s worth understanding what the guidelines actually say.

Let’s look at when a shorter self-employment history may be considered and what else could come into the picture.

Key Takeaways:

• Having less than two years of self-employment doesn’t automatically mean you need to put your homebuying plans on hold.

• A shorter self-employment history may be considered for some mortgage options when specific requirements are met.

• Reaching one year in business doesn’t automatically mean your income can be used to qualify for a mortgage.

• Previous income and work history may be relevant when lenders review a shorter period of self-employment.

• Time in business is only one part of the picture, so it’s worth exploring what may be available based on your individual situation.

---

 

Need more info on the mortgage process?

Grab a complimentary spot in one of my weekly Buyer Q&A sessions!

Can You Get a Mortgage With One Year of Self-Employment?

Potentially. For conventional loans that follow Fannie Mae guidelines, self-employment income with less than two years of history may be considered in certain circumstances.

There are specific requirements, though. Simply reaching your first anniversary in business doesn’t automatically mean your income will qualify. The lender will also need to look at your income history and whether the requirements of the loan are met.

So, if you’re approaching a year of self-employment, don’t automatically assume you need to wait another year. It may be worth finding out what options are available first.

Do You Always Need Two Years of Self-Employment?

Not always. While two years of self-employment history is commonly considered when reviewing income, a shorter history may be accepted in some situations.

If you've been self-employed for less than two years, things like your previous income and work history may become more important. There may also be specific requirements around how much self-employment income is shown on your tax returns.

So, reaching the one-year mark doesn't automatically mean you'll qualify. But it doesn't necessarily mean you need to wait another year either.

If you're around that point, it's worth checking what may be available rather than assuming you're either eligible or ineligible based on time in business alone.

Why Might Your Previous Work History Matter?

If you’ve been self-employed for less than two years, what you were doing before you started your business may be relevant.

A lender may consider a shorter self-employment history when there’s previous income at the same or a greater level in the same field, or from an occupation with similar responsibilities.

For example, someone who leaves an employed role and starts working for themselves in a similar occupation may have a different income history from someone starting an entirely new type of business.

That doesn’t mean one person will qualify and the other won’t. It simply means previous work and income history can be part of the picture when a lender is deciding whether self-employment income can be considered.

One Year in Business Isn’t the Same as One Year of Tax Returns

This is an easy distinction to miss. Being in business for 12 months doesn’t necessarily mean you meet Fannie Mae’s requirements for using a shorter self-employment history.

The guidance specifically looks for a full 12 months of self-employment income from the current business to be shown on the most recently signed personal and business federal income tax returns.

Lenders may allow one year of personal and business tax returns to be used in certain cases. That applies to borrowers with a much longer history of owning the same business and has its own requirements.

So these are two different things: having a shorter self-employment history and only needing to provide one year of tax returns aren’t the same rule.

What Else Do Lenders Look At?

Your time in business is only one part of a mortgage application.

Depending on the loan and your situation, a lender may also look at:

• Your income and how it’s documented
• Your credit history
• Your assets and debts
• Your business finances
• Your business structure and ownership
• Other documentation required for the loan

That’s why I wouldn’t look at 12 months or two years as a simple pass-or-fail test. The lender still needs to review the rest of the application and determine whether the requirements of the loan are met.

Do FHA Loans Have the Same Self-Employment Rules?

FHA loans have their own requirements for self-employed income, so the general guidelines above shouldn’t be applied to every mortgage.

Under FHA guidance, income from self-employment may generally be considered when the borrower has been self-employed for at least two years.

However, FHA guidance also allows income to be considered when someone has been self-employed for between one and two years if they previously worked in the same or a related occupation for at least two years.

That doesn’t mean reaching one year automatically makes someone eligible for an FHA loan. The borrower still needs to meet the other applicable FHA and lender requirements.

Should You Wait Until You’ve Been Self-Employed for Two Years?

Not necessarily. If you’re approaching the one-year mark, I wouldn’t automatically put your homebuying plans on hold because you’ve heard you need two years of self-employment.

At the same time, I wouldn’t assume that hitting 12 months means you’re ready to qualify.

There’s enough variation between loan programs and individual situations that it can be worth checking where you stand first. You may find there’s an option worth exploring now, or that waiting a little longer makes more sense.

Buying a Home With a Shorter Self-Employment History

Having one year of self-employment doesn’t automatically qualify or disqualify you from getting a mortgage. What matters is whether your income can be considered under the guidelines for the loan you’re exploring and whether you meet the other requirements.

If you’ve recently started working for yourself and you’re wondering whether you really need to wait another year before buying a home, I can help you find out. I’ll look at your self-employment and previous income history and help you understand what options may be worth exploring now. If you’re thinking about buying in Maryland, DC, or Virginia and want to know where you stand, get in touch.

Frequently Asked Questions

Does it matter what type of business I own?

It can. Your business structure can affect how your income is reported and the documentation a lender may need to review. A sole proprietor, for example, may document income differently from someone who owns a partnership or S corporation.

Can I qualify if my business income has changed since last year?

Changes in income may be considered as part of the application. How they're treated will depend on the loan program, the income being used to qualify and the borrower's circumstances.

Do business tax deductions affect a mortgage application?

They can. Tax deductions may affect the income shown on your tax returns, but how individual expenses are treated when calculating income can vary. A lender may need to review the details rather than simply looking at your total business revenue.

Can I use income from more than one business?

Potentially. If you own or receive income from multiple businesses, the lender may need to review each source separately to determine what income can be considered.

Does being self-employed affect how much I can borrow?

Being self-employed alone doesn't determine how much you may be able to borrow. The income that can be used for the application, along with the other requirements of the loan, will help determine what you may qualify for.

Sources:

• https://selling-guide.fanniemae.com/sel/b3-3.5-01/underwriting-factors-and-documentation-self-employed-borrower
• https://selling-guide.fanniemae.com/sel/b3-3.5/self-employment-income
• https://selling-guide.fanniemae.com/sel/b3-3.5-02/business-structures
• https://www.hud.gov/hud-partners/single-family-handbook-4000-1