Getting a Mortgage in Washington State When Self-Employed

Getting a mortgage is already a tall order, but getting approved when self-employed may come with a few extra hurdles. In this article, we’ll discuss some strategies to help securing a mortgage in WA while self-employed much more streamlined.

“Can I qualify for a mortgage loan in Washington State, if I’m self-employed?” “Are there any additional loan requirements for self-employed home buyers in 2022?”

These are common questions among mortgage shoppers who happen to be self-employed. Today, we will do our best to address these questions about self-employed mortgage loans in Washington State.

The good news: In 2022, there are some new programs coming onto the market that could make it easier for self-employed home buyers to qualify for mortgage financing. Please contact us if you’d like to learn more.

Getting a Mortgage in Washington State When Self-Employed

Self-employed home buyers might encounter additional paperwork requirements when applying for a mortgage loan in Washington State. Lenders will typically want to make sure that the borrowers they deal with are financially capable of making their mortgage payments. If there isn’t enough stable income coming in every month or if debts are too high, paying a mortgage reliably every billing cycle may be less likely.

That’s why lenders usually like to see some documentation proving the borrower’s financial strength. But when it comes to those who are self-employed, more paperwork might be involved. That’s because lenders will want to make sure that business has been steady over the the last few years before a mortgage is improved.

But don’t let this stop you from pursuing your dream of homeownership. Mortgage lenders are happy to work with well-qualified borrowers with stable income and good credit, including those who are self-employed.

Here are four things to know about home loans for self-employed borrowers:

1. Profit-and-loss statements are usually required

In Washington State, mortgage applicants who are self-employed typically have to provide a profit-and-loss (P&L) statement for income verification. The reason is that the income of self-employed borrowers can’t always be verified through tax returns, as it can for borrowers who work for an employer. So a P&L might be required to round out the verification process.

2. Fluctuating income might be scrutinized

Self-employed borrowers with fluctuating income, or income that has declined from one year to the next, might face additional scrutiny when applying for a loan. Even so, we are seeing some increased flexibility in this area. So don’t hesitate to apply — it’s the only way to know for sure if you can qualify for a mortgage.

Most loan programs in use today will average the past two years of adjusted gross income, for mortgage qualification purposes. That’s if the income has increased. If it has declined, the lender might use the lowest income from the most recent year. This might not necessarily be an issue. It’s just something to be aware of as you move forward.

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3. Greater flexibility for self-employed borrowers

In the past, self-employed borrowers who didn’t have the required two years of federal tax returns to support their business would’ve had a hard time getting a home loan. But that’s not always the case anymore. Looser guidelines from Fannie Mae (the government-sponsored mortgage buyer) allow for one year of returns, as long as cash-flow analysis for the business appears sound. With less than a two year history there are additional requirements that have to be looked at, but compared to years past this is a big change for buyers without a lengthy history of self-employment.

There is greater flexibility these days for self-employed mortgage loans in Washington State. So home buyers shouldn’t feel discouraged for being their own boss.

4. Your ability to repay is what really matters

Mortgage lenders (and the government-sponsored enterprises that establish many of their underwriting guidelines) are mostly concerned with your ability to repay the loan.

This is true whether you are self-employed or working for a traditional employer. If your bank statements, tax records and/or cash-flow analysis show that you have the income needed to repay the mortgage loan, you might be approved with no obstacles at all.

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Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington that has been in business since 1992. We serve the entire state, as well as the broader Pacific Northwest region that includes Idaho, Colorado, and Oregon. We offer a wide variety of mortgage programs and products with flexible qualification criteria since 1992. Please contact us if you have mortgage-related questions.