Self-Employed Home Buyer Guide for San Diego: How Lenders Verify Your Income

If you are self-employed, a lender usually verifies your income with two years of your signed tax returns instead of pay stubs. At the time this article was written, Fannie Mae's guide defined self-employed as owning 25% or more of a business, and it allowed shorter histories only in specific cases.

Who counts as self-employed

At the time this article was written, Fannie Mae's Selling Guide said any individual who has a 25% or greater ownership interest in a business is considered self-employed. That can include a sole proprietor, a partner or an owner of a corporation. Different lenders and loan programs can use other rules, so treat this as one rule book, not the only one.

The documents lenders ask for

• Signed individual federal returns for the past two years, with all schedules, or complete IRS transcripts for the same period.
• Business returns, in some cases.
• A written cash flow analysis of your personal income, when self-employment income is used to qualify.
• A written business income trend analysis, when business returns are not waived.
• If business assets pay for the down payment, closing costs or reserves, a business cash flow analysis, and possibly several months of business asset statements or a current balance sheet.

Lenders may ask for more, so get the exact list on your first call. My guide on how mortgage preapproval works shows what to ask for at the start.

How lenders look at your income

The guide says the personal analysis measures income that is stable and likely to continue. The business analysis looks at recurring income and trends from year to year in gross income, expenses and taxable income. Lenders also track the percentage of gross income that goes to expenses. The lender writes down its conclusion and keeps it in the loan file.

In plain words, a lender wants to see that your income is steady or growing, not a one-time spike. Income that is dropping from year to year gets a closer look.

When one year of returns can be enough

The standard is two years of history. The guide allows one year if all of these apply:

• The business has existed for five years, as shown on the loan application.
• You have held at least 25% ownership for five years in a row.
• The business returns support what is on your application.
• The lender completes the required cash flow analysis.

The guide also lets a lender skip the business returns, with two years of personal returns, when you use personal funds for the down payment, closing costs and reserves, you have five years in the same business and your self-employment income rose over the two years.

What if you have been self-employed less than two years?

It can be possible. The guide says the most recent signed personal and business returns must show a full 12 months of income from the current business. The file must also document prior income at the same level or higher, either in the same field or a similar role. The lender weighs your experience and the business's debts.

Other things to prepare

1. Gather two years of returns and keep your books in order.
2. Pay down personal debt, because your ratio still matters. See my guide to debt-to-income ratio.
3. Keep personal and business money separate where you can, so the source of your down payment is clear.
4. Ask lenders early whether they work with self-employed borrowers every day.

I am not a tax advisor, so questions about what to report or deduct belong with your CPA. I will say that how you file affects the income a lender can use, so talk to your CPA and your lender before you file or change anything.

What this guide cannot promise

Rules differ among lenders and loan programs, and they change. A lender decides whether your income qualifies after reviewing your actual documents.

My advice for San Diego buyers

1. Start a conversation with a lender several months before you plan to buy.
2. Collect two years of signed returns and keep copies.
3. Keep business and personal accounts separate.
4. Ask your CPA how your filing choices affect your mortgage plans.
5. Choose a lender that regularly works with self-employed buyers.

A note on advice

I am a REALTOR®, not a lender, attorney, tax professional or financial advisor, so this guide is general information. Your lender can tell you what you qualify for, and a CPA or attorney can answer tax and legal questions.

Related guides

• Debt-to-Income Ratio Explained: What Lenders Look at When You Buy in San Diego
• Buying a Home in San Diego With a Low Credit Score: What Your Options Are
• Buying a Home in San Diego With Student Loan Debt: How Lenders Count It
• Gift Funds for a Down Payment in San Diego: Who Can Give and What Lenders Require
• How Much Income Do You Need to Buy a Home in San Diego?
• What Are the Steps to Buying a Home in San Diego?

Frequently asked questions

Who counts as self-employed for a mortgage?

At the time this article was written, Fannie Mae's guide treated anyone with a 25% or greater ownership interest in a business as self-employed.

How many years of tax returns do lenders want?

The standard is two years of signed individual federal returns with all schedules, or complete IRS transcripts for the same period.

Can I qualify with less than two years of self-employment?

Sometimes. Fannie Mae's guide requires returns showing a full 12 months of income from the current business and documentation of prior income at the same or a higher level.

Do lenders also look at business returns?

In some cases they do. The guide also says business returns can be waived when certain conditions are met.

Where do I get tax advice?

Ask a CPA. I am a REALTOR, so I can explain the home buying process, but not how to file your taxes.

About the author

Trevor Landress is a San Diego REALTOR® with Coldwell Banker West (DRE# 02126901). He was born and raised in San Diego and has been licensed since 2021.

Trevor helps homeowners sell, guides first-time buyers through the home buying process and assists investors with their next acquisition. His work includes negotiating offers, analyzing market trends, building pricing strategies and running marketing campaigns for his listings.

He serves clients across San Diego County, from coastal communities like La Jolla, Del Mar and Carlsbad to neighborhoods inland.

Trevor is part of the Campbell Group, a three-generation real estate team, and he and the Campbell Group consistently rank as a top producing team at Coldwell Banker West each month. He writes these guides to help San Diego buyers and sellers navigate an ever-changing market. To talk through your plans, call or text (619) 402-4614 or contact Trevor Landress.

How I help San Diego home buyers

I help buyers sort out their budget, understand their loan options with a lender, search for homes, write and negotiate offers, keep track of inspection and contingency deadlines and stay organized through closing.

How I help San Diego home sellers

I help sellers price their home, prepare it for the market, market it to buyers, review and negotiate offers and manage the steps from an accepted offer to closing.

Rules and official pages

• Fannie Mae Selling Guide: Self-employed borrower documentation