Process · 5 min read
How do self-employed borrowers qualify for a mortgage?
July 20, 2026 · Written by Bill Egan, NMLS 7342
Short answer
Most regular loans average two years of self-employment income from tax returns. We add back some non-cash expenses and we do not count one-time income as if it happens every year. A great year after a weak year still gets averaged. Bring the returns you filed, K-1s, and a year-to-date profit and loss — not a screenshot of last month’s sales.
01
Why this comes up
You are on 1099s or you own an LLC. Write-offs made the tax return look small, last month’s sales look great, and you are afraid the loan will use the wrong year.
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Where this goes wrong
Last year’s sales dashboard is used instead of filed returns. Underwriting averages two weak years, or a big equipment purchase crushed the AGI. The pre-approval amount vanishes. The contract is already signed. A last-minute entity change makes the income unusable.
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What we do about it
We average the returns you filed, add back some non-cash expenses, and we do not treat one-time income as if it happens every year. We read K-1s and a year-to-date profit and loss. A sales dashboard is not a tax return. We will not put a made-up number on a letter that the loan cannot support.
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How to get ready
Bring two years of filed returns, K-1s, and a current profit and loss. Do not restructure the business the month before you apply without talking to us and your CPA. If you use a bank-statement program, know it prices differently. The paper you filed with the IRS is the paper we use.