Self-Employed Mortgage Guide for Sacramento Buyers
If you're self-employed, a 1099 contractor, or a real estate agent thinking about buying your own home, you've probably heard some version of "it's harder to get a mortgage when you're self-employed." That's not quite right. It's not harder, it's different. Lenders just calculate your qualifying income a different way than they do for a W-2 employee, and knowing how that math works ahead of time saves you a lot of stress later.
The Two-Year Average
For most loan programs, a lender wants to see two years of self-employment or 1099 income, typically documented through tax returns. They don't use your gross revenue, they use your net income after business expenses, and if your income moved significantly between the two years, they'll usually average the two rather than just using the most recent year.
This is the part that surprises people the most: the same deductions your accountant uses to lower your tax bill also lower the income a lender sees. That's a real tradeoff, and it's worth having a conversation with your accountant before tax season about how aggressive write-offs affect your ability to qualify for a mortgage in the near future, if you know a home purchase is coming.
Add-Backs Lenders Actually Use
Not every deduction counts against you. Lenders add back certain non-cash expenses, most commonly depreciation, because it reduces your taxable income without actually reducing the cash available to you. Depending on your business structure, other items can sometimes be added back too. This is where working with someone who actually reads your full tax return, not just your bottom-line number, makes a real difference.
Schedule C vs. K-1 vs. 1099
How your income is calculated depends partly on your business structure:
Sole proprietors filing Schedule C get income calculated directly off that form, with a standard set of add-backs.
S-corp or partnership owners get income calculated off their K-1s, plus consideration of what the business itself is doing financially.
Straight 1099 contractors without a formal business entity get treated closer to Schedule C, depending on the specifics.
Real estate agents in particular often fall into this category, since most work as independent contractors even when they're part of a brokerage team.
Bank Statement Loans: The Alternative
If your tax returns don't reflect your actual cash flow, because of aggressive write-offs, a recent business change, or just how your accountant structured things, bank statement loan programs exist as an alternative. These qualify you based on deposits into your business or personal bank accounts over a set period, typically 12 or 24 months, instead of tax return income. They come with tradeoffs (usually a higher rate, larger down payment) but they solve a real problem for a lot of self-employed borrowers whose tax returns understate what they actually bring in.
FAQ: Self-Employed Mortgage Qualification
How many years of self-employment do I need before I can qualify? Most programs want two years of self-employment or 1099 income history. Some programs allow less under specific circumstances, ask us about your specific situation.
Will my business write-offs hurt my mortgage application? They can, since lenders qualify you on net income after deductions, not gross revenue. Some non-cash expenses like depreciation get added back, but not everything does.
What's a bank statement loan? A loan program that qualifies you based on bank deposits instead of tax return income, useful if your tax returns understate your actual cash flow.
Do real estate agents qualify differently than other self-employed borrowers? Not fundamentally, most agents are treated as independent contractors and go through a similar Schedule C or 1099 income calculation.
If you're self-employed and thinking about buying in Sacramento, Placer, or El Dorado County, bring us your tax returns before you start house hunting so we can tell you what you actually qualify for, not just what you hope you qualify for.