Mortgage Loan Options for Self-Employed Individuals in California

Self-employment offers a lot of freedom and flexibility. But it can also pose some unique challenges, when it comes to qualifying for a mortgage loan in California. Without a traditional W-2 type of income, self-employed borrowers can have a harder time proving their ability to repay the loan.

But now for the good news. There are mortgage loan options available for self-employed individuals in California. You just have to know where to find them, how they work, and how to apply.

In this article, we will explore some of the financing options and strategies available for self-employed individuals in California, including bank statement and stated income loans.

Self-Employed Mortgage Loan Options in California

For a “traditional” mortgage loan, borrowers usually have to provide copies of their W-2 tax forms for the purposes of proving their income. Mortgage lenders review these documents (among others) to make sure a person has the financial ability to repay the loan, which is in everyone’s best interest.

But this isn’t always possible for self-employed borrowers in California. Contractors, freelancers, gig economy workers, and other self-employed people usually receive 1099 tax forms, as opposed to the traditional W-2.

Despite these differences, self-employed home buyers in California can still qualify for mortgage loan financing.  Having the ability to repay the debt is what really matters. If you have a decent credit score and sufficient income to manage your monthly payments, your self-employment status might not be an obstacle at all.

You just have to choose a program that’s best suited for a self-employed borrower, so let’s talk about some of those mortgage options…

Bank Statement Loans

Many self-employed borrowers in California end up using a bank statement loan to finance their home purchases. With this mortgage option, you provide bank statements as proof of your regular income. But you don’t have to provide pay stubs or W-2s, like a traditionally employed borrower would have to do.

In California, the bank statement loan can also be a good option for self-employed individuals who have a lot of business expenses that reduce their taxable income.

To qualify for this type of mortgage loan, borrowers typically need to provide 12 to 24 months of bank statements. You’ll also need to have a decent credit score and a manageable level of debt, relative to your income. Check out the article below to learn more about this option.

Learn more about bank statement loans

Stated Income Loans

Stated income loans are another option for self-employed home buyers in California who cannot document their income through traditional means. As the name implies, these loans allow borrowers to state their income without having to provide extensive documentation to support it.

Due to the lack of documentation involved, these loans can be riskier for lenders and mortgage servicers. So you might end up with a higher interest rate, compared to a regular conventional mortgage product. And once again, you’ll need to have a good credit history and a manageable level of debt. See the article below for more details.

Learn more about stated income loans

Conventional, FHA and VA Options

What about regular mortgage loans? Can self-employed home buyers in California qualify for a conventional or “regular” mortgage loan, when buying a house?

In many cases, the answer is yes — with a few stipulations.

Depending on your situation, you might not need to use one of the specialty loan options mentioned above. You might be able to qualify for a traditional or conventional loan, as long as your income supports it.

In fact, the mortgage qualification process for self-employed and traditionally employed borrowers is very similar. But there are a few important differences when it comes to documentation.

Self-employed home buyers in California who want to apply for a conventional loan usually have to provide profit-and-loss statements, along with personal tax returns for the past two years. Additional documentation might be required as well.

Government-backed mortgage programs, like FHA and VA, are another option for self-employed borrowers. They offer other benefits as well, including the ability to make a low down payment (or no down payment, in the case of VA loans). So this is another option worth exploring.

These programs have specific requirements for the types of documents that need to be provided. And that’s a subject we plan to explore in a future blog post. For now, just know that it’s possible for self-employed home buyers in California to qualify for both the FHA and VA loan programs.

A Good Reason to Work with a Mortgage Broker

When exploring your financing options, you can benefit by working with a mortgage broker like Bridgepoint Funding.

Because of our business model, we’re able to offer a larger variety of loan options. That’s because we work with a number of different lenders, instead of just one. This increases the chance of finding the right type of loan for each individual client.

We work with self-employed home buyers in California on a regular basis. We are familiar with all of the different loan options and what it takes to qualify.

So, if you have questions about getting a mortgage while self-employed, please contact our staff. We can help you choose the right financing strategy for your particular situation.