It was not too long ago when self employed borrowers were able to qualify for mortgage financing with stated income and no documentation loans. With stated income mortgages, lenders simply asked borrowers to "state their income". If their credit was decent, their income seemed plausible for their industry, and their home appraised, they likely were able to obtain financing. With a no-doc mortgage, lenders typically just based their qualifying decision upon the borrowers' credit scores. That's it. No other supporting income, asset, or employment verification was needed.
While the idea of stated income loans may have seemed like a noble effort to streamline the financing process for self employed individuals, both borrowers and mortgage companies manipulated the system which led to a disproportionate number stated and no-doc of loans entering into default as borrowers took on mortgages that they could not afford. When you coupled these unconventional lending practices with depreciating real estate values, borrowers ended up underwater and unable to refinance out of their adjustable rate mortgages or higher interest fixed rate loan.
Today, stated income and no-doc loans are like finding a needle in a haystack as lending standards have become more restrictive and self-employed borrowers are back to having to supply years of tax returns in order to be considered for financing.
What is involved with getting a mortgage for someone who is self-employed in today's marketplace?
If you are self-employed, applying for and getting approved for a home loan will follow generally the same mortgage process as for someone working for an employer. However, instead of documenting your income with a W-2 and a recent paystub there will be a little more paperwork involved. You will likely be asked to provide copies of some of the following items, and possibly additional items if your situation warrants it: