Yes, you can get a mortgage as a contractor. Self-employed borrowers qualify for the same conventional, FHA, and other loan programs as W-2 employees, but the paperwork is heavier and the way lenders measure your income is different. In most cases you’ll need at least two years of self-employment in the same field, two years of federal tax returns, and enough documented net income to fit within standard debt-to-income limits.
The process is predictable once you understand how underwriters read a contractor’s file. The surprises usually come from the income math, not the eligibility rules.
What Lenders Measure Differently
A salaried applicant hands over pay stubs and a W-2, and the lender knows the number. Your income has to be reconstructed from tax returns, and the number that matters is net profit after business expenses, averaged over two years. That one shift drives almost everything else: the documents you’ll gather, the deductions you may regret taking, and how much house you can afford.
Lenders aren’t skeptical of contractors as a class. They are looking for evidence that your earnings are stable and likely to continue, and self-employment simply takes more paper to prove that than a job offer letter does.
Basic Eligibility
Two Years of Self-Employment
Most lenders want at least two years of continuous self-employment in the same industry.1Freddie Mac. Qualifying for a Mortgage When You’re Self-Employed If you’ve been on your own for less than two full years, some lenders will accept a W-2 from a previous employer in the same field, combined with your self-employment records.
There’s a useful exception for established businesses. If your business has operated for at least five years, Fannie Mae’s automated underwriting system may require only one year of personal tax returns.2Fannie Mae. Income and Employment Documentation for DU Newer businesses should expect to provide the full two years.
Credit Score Minimums
Credit requirements don’t change because you’re self-employed. For a conventional loan through Fannie Mae, the minimum is 620 for a fixed-rate mortgage and 640 for an adjustable-rate mortgage.3Fannie Mae. General Requirements for Credit Scores FHA sets its floor lower: 580 qualifies you for the minimum 3.5% down payment, and scores between 500 and 579 require 10% down.
How Your Qualifying Income Is Calculated
This is the part that catches most contractors off guard. The income the lender uses is almost always lower than what you feel you actually earn.
The Two-Year Average
Lenders take net income from your Schedule C for each of the past two tax years and average them. Net income means what’s left after every business deduction. If you cleared $110,000 one year and $90,000 the next, your qualifying income is $100,000, or about $8,333 a month. That monthly figure is what gets plugged into your debt-to-income ratio.
The Depreciation Add-Back
Some of the math works in your favor. Fannie Mae allows certain non-cash deductions from Schedule C to be added back to your income for mortgage purposes: depreciation, depletion, amortization, business use of your home, and casualty losses.4Fannie Mae. Income or Loss Reported on IRS Form 1040, Schedule C These lowered your taxable income on paper without actually taking money out of your pocket. If you claimed $12,000 in depreciation on equipment and a $5,000 home office deduction, that $17,000 gets added back. For contractors with significant equipment, this can meaningfully raise the loan amount you qualify for.
When Income Has Declined
If year two was lower than year one, expect friction. Lenders read declining income as a risk signal. Instead of averaging, many underwriters will use the lower year as your qualifying income, or require a written explanation with documentation showing the drop was temporary. A contractor who earned $120,000 and then $80,000 may qualify on $80,000 rather than the $100,000 average. Keeping income stable or growing in the two years before you apply changes the loan amount materially.
Debt-to-Income Ratio
Qualifying income feeds the debt-to-income ratio, which compares your total monthly debt payments, including the proposed mortgage, to your gross monthly income. Conventional loans processed through Fannie Mae’s automated system allow a DTI up to 50%. For manually underwritten conventional loans, the cap is 36%, stretching to 45% with strong credit scores and cash reserves.5Fannie Mae. Debt-to-Income Ratios FHA tends to be more flexible, with automated approvals sometimes reaching the mid-50s on the back-end ratio.
Contractor files land in manual underwriting more often than W-2 files do, which means the tighter 36% to 45% range is the one you’re most likely to face. That makes the tax deduction question worth taking seriously. Every dollar of business expense you claim lowers both your tax bill and your borrowing power.
Documents You’ll Need
Plan on providing more paperwork than a salaried applicant, and make sure the numbers line up across documents. Discrepancies trigger questions that slow the file down.
Tax Returns
The foundation is two years of personal federal tax returns (IRS Form 1040), including all schedules.6Fannie Mae. Underwriting Factors and Documentation for a Self-Employed Borrower Sole proprietors live or die by Schedule C, which shows gross receipts, business expenses, and net profit. If you operate through a partnership or S-corporation, the corresponding business returns are required too.
Lenders won’t just take the returns at face value. Fannie Mae requires you to sign IRS Form 4506-C, which lets the lender pull tax transcripts directly from the IRS and compare them against the returns you submitted.7Fannie Mae. Requirements and Uses of IRS IVES Request for Transcript of Tax Return (Form 4506-C) Mismatches raise flags that can derail an application. File clean returns well before you plan to apply.
Income and Business Verification
You’ll also provide 1099-NEC or 1099-MISC forms from clients and a year-to-date profit and loss statement showing where your current year is trending. The P&L should track with the pattern in your prior returns. If your last two years averaged $90,000 in net income but your current P&L shows $40,000 through September, expect questions.
To confirm the business exists and is still operating, acceptable documents include a business license, an IRS EIN confirmation letter, articles of incorporation, or partnership agreements. A letter from a CPA confirming the business is active and how long it has been operating also works.
Down Payment by Loan Type
Your down payment requirement depends on the loan program, not your employment type. Contractors aren’t charged a higher minimum.
- Conventional loans: as low as 3% down for a primary residence, with private mortgage insurance on any conventional loan below 20% down.
- FHA loans: 3.5% down with a credit score of 580 or above, or 10% down with a score between 500 and 579. Most FHA loans carry mortgage insurance for the life of the loan.
- Non-QM and bank statement loans: typically 10% to 20% down, sometimes more. The trade-off is more flexible income documentation.
A larger down payment helps a contractor file more than it helps a W-2 file. It lowers the loan-to-value ratio, reduces lender risk, and offsets concerns about income variability. If you can put down 10% to 20%, you’ll have more options and better rates than at the bare minimum.
Bank Statement and Non-QM Loans
If your tax returns don’t reflect your real cash flow, bank statement loans are a workable alternative. These are a type of non-qualified mortgage (Non-QM) built for self-employed borrowers.
Instead of tax returns, the lender reviews 12 to 24 months of personal or business bank statements and uses average monthly deposits to set your income. This helps contractors whose aggressive deductions drop Schedule C net income well below what actually comes in. The cost is real: bank statement loans usually want 10% to 20% down, carry higher interest rates than conventional loans, and may have stricter credit requirements.
Non-QM loans more broadly can allow DTI ratios above 50% and accept a wider range of income documents, including a P&L statement alone in some cases. Worth exploring if a conventional or FHA loan isn’t working, as long as you go in expecting to pay more for the flexibility.
Reserves and Keeping Accounts Clean
Cash reserves are the liquid assets left after closing. For a one-unit primary residence through Fannie Mae’s automated underwriting, there’s no formal minimum. A second home requires at least two months of mortgage payments in reserve, and investment properties or two-to-four-unit homes require six months.8Fannie Mae. Minimum Reserve Requirements Manually underwritten loans, common for contractors, may require more depending on the scenario.
Keep your business and personal bank accounts separate. Commingled funds create underwriting headaches because the lender can’t easily tell business revenue from personal deposits. If business income lands in the same account you use for groceries, expect the underwriter to request an accounting of every meaningful deposit. Separate accounts keep the paper trail clean.
What to Do in the Two Years Before You Apply
The biggest mistake contractors make is treating the mortgage as a problem to solve the month they want to buy. The two-year lookback on tax returns means your preparation window is really 24 months long.
- Review deductions with your CPA. You don’t need to overpay on taxes, but balancing tax savings against mortgage eligibility is a conversation worth having a year or two before applying.
- Keep income steady or growing. A decline between your two most recent years hurts more than a flat but modest income.
- Maintain clean records. A current P&L, organized 1099s, and consistent bookkeeping make underwriting faster.
- Avoid new debt before applying. Every monthly payment reduces the loan amount you qualify for through DTI.
- Build reserves. Three to six months of mortgage payments in liquid savings strengthens the file even when the program doesn’t require it.
Contractors who understand how lenders read their income tend to move through the process without major surprises. The rules are more documentation-heavy than what a salaried employee faces, and the math is predictable once you know it.