Common Mortgage Hurdles for Freelancers & Small Business Owners

When Deductions Become Double-Edged Swords

Ah, tax deductions—the freelancer’s best friend and worst enemy. While writing off business expenses lowers your tax bill, it also trims your “official” income on paper. Lenders zero in on that net income (after deductions) to gauge affordability, which can make even thriving freelancers look like shaky bets. Imagine your tax return showing a leaner bottom line than your bank account suggests—cue the raised eyebrows from mortgage underwriters. The fix? Keep meticulous records and team up with a CPA to strategize deductions without torpedoing future loan applications. For clarity on what’s deductible (and what’s not), the IRS Self-Employed Tax Center is your go-to guide. Think of it as balancing creativity with caution.

Why Lenders Prefer Predictability Over Excitement

Freelancers and small business owners thrive on variability, but lenders? They crave predictability like the rest of us crave caffeine on Monday mornings. If your income swings month-to-month—thanks to seasonal clients or project-based work—lenders might average your earnings over two years or fixate on downward trends. To smooth the ride, lock in consistent contracts, diversify your client base, and stash cash in an emergency fund for dry spells. Pro tip: A 12-month cash flow statement can shout “stability!” louder than a single tax return ever could. Tools like SCORE’s free financial templates make tracking income streams a breeze. Monarch Money, QuickBooks Solopreneur or FreshBooks can also help organize financial records, making it easier to present a clear picture of your finances. For more tips, check out our blog How to Get a Mortgage as a Self-Employed Borrower.

Bank Statements vs. Tax Returns

No traditional pay stubs? No problem—unless your bank statements and tax returns tell conflicting stories. Freelancers often rely on bank deposits, profit-and-loss reports, or 1099s to prove income, but lenders still treat tax returns as the “gold standard.” If your bank account sparkles brighter than your IRS filings, prepare for some head-scratching. Combat this by submitting both documents, plus a letter from your accountant explaining gaps. Bonus points if you show 24+ months of steady deposits. It’s like giving lenders a financial Rosetta Stone. Check out our blog Bank Statement Loans: What They Are and Who They’re For to learn how some freelancers use bank statements alone to secure mortgages.

Building a Lender-Friendly Financial Narrative

Your mortgage application is your chance to star as the reliable hero in a financial drama. Start by polishing your credit score (aim for 720+), slashing debt, and avoiding big purchases before applying. If you’ve recently pivoted your business or added new revenue streams, wait until you have two years of history in that niche—lenders adore patterns. And here’s a power move: A beefy down payment (20% or more) can quiet skeptics by offsetting perceived risk.

What sends lenders running? Inconsistent income, sky-high debt-to-income ratios, or businesses younger than a toddler (less than two years old). Surprise tax liens or unpaid bills? Instant red flags. Banish these ghosts by settling debts, keeping business/personal accounts separate, and burying financial skeletons before applying.

The Secret Society of Self-Employed Lenders: Do They Exist?

Good news: Yes! Some lenders specialize in “non-traditional” borrowers.

Don’t let paperwork, unpredictable income, or bank skepticism stand between you and your dream home. At 14 Days To Close, we specialize in turning complex mortgage challenges into success stories for freelancers, entrepreneurs, and self-starters. With thousands of clients guided to hassle-free closings, we know how to spotlight your strengths and craft a winning application. Ready to explore your options? Call us today at (813) 343-4775 because your homeownership journey shouldn’t feel like a solo mission.

What’s Your Biggest Mortgage Challenge? 🤔

• Saving for a down payment
• Finding a self-employed-friendly lender
• Navigating taxes
• Proving consistent income