What we verified in “Buying a home when you're self-employed: what lenders ask”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. According to the IRS, you are generally self-employed if you carry on a business as a sole proprietor or an independent contractor, or are otherwise in business for yourself, including part-time or as a gig worker; your net profit is what is left after subtracting business expenses from business income, and it becomes part of your income on Form 1040; and you have to file a return if your net earnings from self-employment were $400 or more.

   Sources 1 · Self-employed individuals tax center, 'Who is self-employed?': 'You carry on a trade or business as a sole proprietor or an independent contractor'; 'You are otherwise in business for yourself (including in a part-time business or as a gig worker)'; 'What are my self-employed tax obligations?': 'You do this by subtracting your business expenses from your business income'; 'the difference is net profit and becomes part of your income on page 1 of Form 1040 or 1040-SR'; 'You have to file an income tax return if your net earnings from self-employment were $400 or more' · Checked October 17, 2026

2. According to the IRS, Schedule C (Form 1040) is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor.

   Sources 2 · About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship): 'Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor' · Checked October 17, 2026

3. According to the IRS, gig economy income must be reported on a tax return even if it comes from part-time, temporary or side work, even if it is not reported on a form such as a 1099-K, 1099-MISC, 1099-NEC or W-2, and even if it is paid in cash, property, goods or virtual currency.

   Sources 3 · Gig economy tax center, 'Gig economy income is taxable': 'You must report income earned from the gig economy on a tax return, even if the income is'; 'From part-time, temporary or side work'; 'Not reported on an information return form'; 'like a Form 1099-K, 1099-MISC, 1099-NEC, W-2 or other income statement'; 'Paid in any form, including cash, property, goods, or virtual currency' · Checked October 17, 2026

4. For Fannie Mae, anyone with a 25% or greater ownership interest in a business is self-employed; before approving the loan the lender must analyze the stability of your income, the location and nature of the business, the demand for what it sells, its financial strength and its ability to keep generating enough income to make the payments.

   Sources 4 · Selling Guide B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower (12/13/2023), 'Factors to Consider for a Self-Employed Borrower': 'Any individual who has a 25% or greater ownership interest in a business is considered to be self-employed'; 'the stability of the borrower's income'; 'the location and nature of the borrower's business'; 'the demand for the product or service offered by the business'; 'the financial strength of the business'; 'the ability of the business to continue generating and distributing sufficient income' · Checked October 17, 2026

5. Fannie Mae generally requires lenders to get a two-year history of your earnings; with less than two years of self-employment, the income may be considered if your most recent returns show a full year (12 months) of income from the current business and there is documentation that you earned the same or more before, in a field with the same products or services or in a job with similar responsibilities.

   Sources 4 · B3-3.5-01, 'Length of Self-Employment': 'Fannie Mae generally requires lenders to obtain a two-year history of the borrower's prior earnings'; 'the income of a person who has less than a two-year history of self-employment may be considered'; 'reflect a full year (12 months) of self-employment income from the current business'; 'at the same (or greater) level'; 'in a field that provides the same products or services as the current business' · Checked October 17, 2026

6. For Fannie Mae, the lender may verify your self-employment and income with copies of your signed federal tax returns for the past two years (individual and, in some cases, business), with all schedules, or with IRS-issued transcripts; one year of returns may be enough if the business has existed for five years and you have owned 25% or more of it for those five years in a row.

   Sources 4 · B3-3.5-01, 'Verification of Income': 'copies of their signed federal income tax returns (both individual returns and in some cases, business returns)'; 'for the past two years (with all applicable schedules attached)'; 'IRS-issued transcripts'; 'The lender may provide one year of personal and business tax returns if the following requirements are met'; 'in existence for five years'; 'the borrower has had an ownership share of 25% or more for the past five years consecutively' · Checked October 17, 2026

7. For Fannie Mae, the lender must prepare a written analysis of your personal self-employment income, including the business income or loss on your returns, to determine how much stable and continuous income you will have; it may use the Cash Flow Analysis form (Form 1084) or another method that applies the same principles; and any business debt you are personally obligated on must be included in your monthly obligations.

   Sources 4 · B3-3.5-01, 'Analysis of Borrower's Personal Income': 'The lender must prepare a written evaluation of its analysis of a self-employed borrower's personal income'; 'to determine the amount of stable and continuous income that will be available to the borrower'; 'Cash Flow Analysis (Form 1084)'; 'Income Verification for Self-Employed Co-Borrowers': 'Any business debt on which the borrower is personally obligated must be included in the total monthly obligations' · Checked October 17, 2026

8. For Fannie Mae, if you qualify with income from your business and also want to use business funds for the down payment, closing costs or reserves, the lender must do a business cash flow analysis to confirm the withdrawal will not hurt the business, and may ask for more documents, such as several months of business account statements or a current balance sheet.

   Sources 4 · B3-3.5-01, 'Use of Business Assets': 'the lender must perform a business cash flow analysis to confirm that the withdrawal of funds for this transaction will not have a negative impact on the business'; 'several months of recent business asset statements'; 'a current balance sheet' · Checked October 17, 2026

9. For Fannie Mae, business funds may be an acceptable source for the down payment, closing costs and reserves; you must be listed as an owner of the account, and it is verified like any other account.

   Sources 5 · Selling Guide B3-4.2-02, Depository Accounts (12/14/2022), 'Business Assets': 'Business assets may be an acceptable source of funds for the down payment, closing costs, and financial reserves'; 'The borrower must be listed as an owner of the account' · Checked October 17, 2026

10. For Fannie Mae, the income or loss from your sole proprietorship is calculated on Schedule C and carried to Form 1040; the lender must deduct income that will not recur and add back certain items Schedule C subtracts: depreciation, depletion, business use of a home, amortization and casualty losses.

    Sources 6 · Selling Guide B3-3.6-03, Income or Loss Reported on IRS Form 1040, Schedule C: 'The income (or loss) from a borrower's sole proprietorship is calculated on IRS Form 1040, Schedule C, then transferred to IRS Form 1040'; 'Non-recurring income must be deducted in the cash flow analysis'; 'must be added back to the cash flow analysis: depreciation, depletion, business use of a home, amortization, and casualty losses' · Checked October 17, 2026

11. For Fannie Mae, the lender may use a profit and loss statement (audited or not) to support that your income is stable; it looks much like Schedule C; it is not required for most businesses, but if your application is dated more than 120 days after the end of the business's tax year, the lender may ask for one.

    Sources 7 · Selling Guide B3-3.7-04, Analyzing Profit and Loss Statements: 'audited or unaudited'; 'to support its determination of the stability or continuance of the borrower's income'; 'A typical profit and loss statement has a format similar to IRS Form 1040, Schedule C'; 'A year-to-date profit and loss statement is not required for most businesses'; 'more than 120 days after the end of the business's tax year' · Checked October 17, 2026

12. For Fannie Mae, the lender may get IRS transcripts of your returns (for example, Wage and Income Transcripts for W-2 and 1099 forms); every borrower whose income is used to qualify must complete and sign an IRS Form 4506-C at or before closing; Form 4506-C can request transcripts for up to four years; and if the lender gets the transcripts before closing, it must use them to verify the income documents you provided.

    Sources 8 · Selling Guide B3-3.1-02, Tax Return and Transcript Documentation Requirements (06/03/2026): 'Wage and Income Transcripts for W-2s, 1098s, and 1099s'; 'The lender must have each borrower whose income is used in qualifying (regardless of income source) complete and sign a separate IRS Form 4506-C at or before closing'; 'IRS Form 4506-C can be used to obtain tax transcripts for up to four years or tax periods'; 'the transcript(s) must be used to verify the income documentation provided by the borrower' · Checked October 17, 2026

13. On an FHA loan, self-employment income is income from a business in which you own 25 percent or more; the lender may consider it if you have been self-employed for at least two years; with one to two years, only if you previously worked at least two years in the same line of work or a related occupation; and if business income declined more than 20 percent over the analysis period, the loan must be manually underwritten.

    Sources 9 · HUD Handbook 4000.1 (last revised 8/12/2026), II.A.4.c.x, Self-Employment Income (TOTAL): 'income generated by a business in which the Borrower has a 25 percent or greater ownership interest'; 'The Mortgagee may consider Self-Employment Income if the Borrower has been self-employed for at least two years'; 'If the Borrower has been self-employed between one and two years'; 'previously employed in the same line of work'; 'or in a related occupation for at least two years'; 'greater than 20 percent decline in Effective Income over the analysis period'; 'the Mortgagee must downgrade and manually underwrite' · Checked October 17, 2026

14. On an FHA loan, the lender must get your complete individual returns for the two most recent years, with all schedules, and your business returns, unless your self-employment income went up over those two years, closing funds are not coming from business accounts and the loan is not a cash-out refinance; instead of your signed copies it may get transcripts directly from the IRS with your signed Form 4506, 4506-C or 8821; it must get a year-to-date profit and loss statement if more than a calendar quarter has passed since your last tax year ended (no balance sheet if you file Schedule C); and it figures your income with the lesser of the two-year average and the most recent one-year average.

    Sources 9 · II.A.4.c.x, Self-Employment Income (TOTAL), (C) Required Documentation: 'complete individual Tax Returns for the most recent two years, including all schedules'; 'individual Tax Returns show increasing Self-Employment Income over the past two years'; 'funds to close are not coming from business accounts'; 'the Mortgage to be insured is not a cash-out refinance'; 'a signed IRS Form 4506, IRS Form 4506-C, or IRS Form 8821, and tax transcripts directly from the IRS'; 'if more than a calendar quarter has elapsed since the date of the most recent calendar or fiscal year-end tax period'; 'A balance sheet is not required for self-employed Borrowers filing Schedule C income'; (D) Calculation of Effective Income: 'by using the lesser of'; 'the average gross Self-Employment Income earned over the previous one year' · Checked October 17, 2026

15. On an FHA loan, income used to qualify must be reasonably likely to continue through at least the first three years of the loan, and the lender may only consider income that is legally derived and, when required, properly reported as income on your tax returns.

    Sources 9 · II.A.4.c, Income Requirements (TOTAL): 'Effective Income must be reasonably likely to continue through at least the first three years of the Mortgage'; i. General Income Requirements (TOTAL): 'The Mortgagee may only consider income if it is legally derived and, when required, properly reported as income on the Borrower's Tax Returns' · Checked October 17, 2026

16. According to the CFPB, the ability-to-repay rule prohibits most lenders from giving you a mortgage unless they have made a reasonable and good faith determination that you can pay it back; to do that they must find out, consider and document your income, assets, employment, credit history and monthly expenses.

    Sources 10 · What is the ability-to-repay rule? Why is it important to me? (last modified Apr. 26, 2024): 'prohibits most lenders from giving you a mortgage unless they have made a reasonable and good faith determination that you are able to pay back the loan'; 'find out, consider, and document a borrower's income, assets, employment, credit history, and monthly expenses' · Checked October 17, 2026

17. Under Regulation Z, the lender must verify the income or assets it relies on with third-party records that provide reasonably reliable evidence; it may use an IRS tax-return transcript, and examples of other records include copies of tax returns you filed, W-2 forms, financial institution records, receipts from check cashing services and receipts from a funds transfer service.

    Sources 11 · 12 CFR §1026.43(c)(4): 'using third-party records that provide reasonably reliable evidence of the consumer's income or assets'; 'a tax-return transcript issued by the Internal Revenue Service (IRS)'; 'Copies of tax returns the consumer filed with the IRS or a State taxing authority'; 'Financial institution records'; 'Receipts from the consumer's use of check cashing services'; 'Receipts from the consumer's use of a funds transfer service' · Checked October 17, 2026

18. According to the CFPB, all government-backed loans (FHA, USDA and VA) are Qualified Mortgages; other loans, including conventional loans backed by Fannie Mae and Freddie Mac, must meet special requirements to qualify; and a Qualified Mortgage requires the lender to consider and verify your income or assets and debts, and has a limit on upfront points and fees.

    Sources 12 · What is a Qualified Mortgage? (last modified Jan. 7, 2025): 'Types of qualified loans include all government-backed loans'; 'conventional loans backed by Fannie Mae and Freddie Mac'; 'must meet special requirements to be considered qualified loans'; 'A limit on upfront points and fees'; 'A requirement to consider and verify income or assets and debts' · Checked October 17, 2026

19. According to the CFPB, only Qualified Mortgages have a limit on points and fees, and lenders are not required to make Qualified Mortgages, so they can charge higher points and fees if they choose.

    Sources 13 · My lender says it can't lend to me because of a limit on points and fees on loans. Is this true? (last modified Feb. 12, 2024): 'only Qualified Mortgages have a limit on points and fees'; 'Lenders are not required to make Qualified Mortgages, so they can charge higher points and fees if they choose' · Checked October 17, 2026

20. The CFPB suggests gathering, before you talk to lenders, your signed federal tax returns for the last two years, documentation of other income and your two most recent bank statements; it says that if you are self-employed or have irregular or nonwage income you may need additional documentation, that requirements vary from lender to lender, and that you should share your situation with loan officers or a housing counselor and ask what documentation you need.

    Sources 14 · Create a loan application packet (last modified Dec. 12, 2024): 'Signed federal tax return for the last two years'; 'Documentation of other sources of income'; 'Bank statements, two most recent'; 'If you are self-employed or have irregular or nonwage income, you may need additional documentation'; 'Requirements vary from lender to lender'; 'Share your situation when you meet with loan officers or a housing counselor and ask what kind of documentation you need' · Checked October 17, 2026

21. According to the IRS, you can get your tax records online or by mail, including transcripts of past returns and wage and income statements; in your online account you can view, print or download them, and by mail they arrive in 5 to 10 calendar days at the address the IRS has on file.

    Sources 15 · Get your tax records and transcripts: 'You can access your personal tax records online or by mail, including transcripts of past tax returns, tax account information, wage and income statements'; 'View, print or download your transcripts'; 'Transcripts that arrive in 5 to 10 calendar days at the address we have on file for you' · Checked October 17, 2026

22. According to the CFPB, your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income, which is generally what you earn before taxes and other deductions; it is one way lenders measure your ability to pay, and different products and lenders have different limits.

    Sources 16 · What is a debt-to-income ratio? (last reviewed Aug. 28, 2023): 'all your monthly debt payments divided by your gross monthly income'; 'the amount of money you have earned before your taxes and other deductions are taken out'; 'one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow'; 'Different loan products and lenders will have different DTI limits.' · Checked October 17, 2026

23. According to the IRS, the VITA and TCE programs offer free basic tax return preparation to people who qualify; the IRS sets no program-wide income limit, but each site may set its own; the people they serve include limited English-speaking taxpayers; and you find a site with the VITA Locator Tool or by calling 800-906-9887.

    Sources 17 · Free tax return preparation for qualifying taxpayers: 'offer free basic tax return preparation to qualified individuals'; 'While the IRS does not set a program-wide income limit, individual VITA sites may establish their own'; 'Limited English-speaking taxpayers'; 'use the VITA Locator Tool or call 800-906-9887' · Checked October 17, 2026

24. HUD-approved housing counselors give independent advice on buying a home, renting, defaults and credit, often at little or no cost.

    Sources 18 · Find a Housing Counselor: 'Housing counselors throughout the country can provide advice on buying a home, renting, defaults, forbearances, foreclosures, and credit issues'; 'they can offer independent advice, often at little or no cost to you' · Checked October 17, 2026