Buying a Home in Greater Boston When You're Self-Employed or 1099

Labor Day is a celebration of work, but what "going to work" looks like has changed quite a bit.

Today's workforce includes freelancers, consultants, small-business owners, independent contractors, creatives, real estate agents, and people earning income from more than one source. Plenty of those workers are also thinking about buying a home.

If you're self-employed or receive 1099 income, that does not automatically put homeownership out of reach. Your mortgage application may simply require a little more explanation and documentation than someone who receives the same W-2 paycheck every two weeks.

And in the Greater Boston real estate market, understanding that before you fall in love with a property can make the entire homebuying process smoother.

Start With the Lender, Not the Listings

We understand. Looking at Cambridge condos and Somerville houses is considerably more fun than collecting tax returns.

Still, if you're self-employed, freelance, commission-based, or earning irregular income, one of the smartest things you can do is speak with a lender before getting serious about listings.

The Consumer Financial Protection Bureau notes that buyers with self-employed, irregular, or nonwage income may need additional documentation and recommends explaining their situation to potential lenders early.

The CFPB also encourages homebuyers to compare lenders. That can be especially worthwhile if your income or application is more complicated than average.

The goal is to answer an important question before the home search gets serious:

What can you comfortably buy based on the income a lender can actually use to qualify you?

Once you know that, your real estate agent can build a much more useful search.

How Do Lenders Look at Self-Employed Income?

This is where self-employed buyers sometimes encounter a surprise.

The amount your business brings in is not necessarily the same as the income a mortgage lender will use when evaluating your application.

For example, a sole proprietor who files Schedule C reports business income and expenses as part of their federal tax return. According to Fannie Mae's underwriting guidance for Schedule C income, lenders may start with the net profit or loss shown on Schedule C and then make certain adjustments when analyzing the borrower's cash flow.

That means gross business revenue, taxable business income, and mortgage qualifying income are not necessarily the same number.

Some expenses and deductions may affect the calculation differently than a business owner expects. That's why a buyer who knows exactly how much their company earned last year can still be surprised by the income figure a lender uses.

Your lender should walk you through how your specific income will be evaluated rather than leaving you to reverse-engineer underwriting guidelines yourself.

Do Self-Employed Homebuyers Need Two Years of Tax Returns?

Not always.

You may hear that self-employed buyers universally need two years of tax returns, but mortgage requirements are more nuanced than that.

Fannie Mae's self-employed borrower guidance generally looks for a two-year history of prior earnings when evaluating self-employment income. However, its guidelines also provide circumstances where borrowers with a shorter self-employment history may be considered, and documentation requirements can vary.

The documentation your lender requests will depend on your employment history, business, loan program, and overall financial picture.

So instead of assuming what you'll need, ask your lender directly:

"Based on my income and employment history, what documentation should I have ready before I start making offers?"

That question can save a remarkable amount of scrambling later.

What Documents Might a Self-Employed Buyer Need?

Depending on the lender and loan program, a self-employed or 1099 homebuyer may be asked to provide documentation such as:

• Personal federal tax returns
• Business tax returns
• Schedule C or other applicable tax schedules
• 1099 forms
• Recent bank statements
• Business financial records
• Documentation of additional income sources
• Information verifying the existence or history of the business

Not every buyer will need every document on that list.

The CFPB specifically notes that documentation requirements vary by lender and individual situation. The important thing is to find out what your lender will require before an offer deadline is suddenly twelve hours away.

What Is Debt-to-Income Ratio, or DTI?

Another term you'll probably hear during the mortgage process is debt-to-income ratio, usually shortened to DTI.

Your DTI compares certain monthly debt obligations with the monthly income a lender uses when evaluating your mortgage application. It is one of several factors that can affect mortgage qualification.

For self-employed buyers, the important distinction is that your lender is calculating that ratio using the income they determine is eligible for qualification. It may not match the number you would use when describing your annual earnings or business revenue.

Exact DTI requirements vary based on the loan program and individual application, so this is another calculation to leave to your lender rather than an online mortgage calculator.

Know Your Purchasing Power Before Setting Your Home-Search Range

This is where the mortgage conversation becomes a real estate strategy.

If your preapproval supports a $900,000 purchase, spending Saturday touring $1.2 million homes is probably not the best use of anyone's time.

On the other hand, you may discover after speaking with a lender that your purchasing power is stronger than you expected.

A solid pre-approval letter gives you and your real estate agent a realistic starting point for the search.

That matters throughout Greater Boston, particularly in markets such as Somerville, Cambridge, Arlington, Medford, and Boston, where desirable properties can move quickly and buyers may have only a few days between seeing a new listing and making an offer.

Solve the financing questions before the offer deadline, not during it.

Should You Make Financial Changes While Buying a Home?

Once you're actively searching, and especially once you're under agreement, talk with your lender before making significant financial or business changes.

That might include:

• Taking on new debt
• Opening new credit accounts
• Making a major business purchase
• Moving large amounts of money between accounts
• Changing the way you pay yourself
• Making a significant change to your business or employment

There may be perfectly sensible reasons to do any of those things. They can still create additional underwriting questions.

Your lender can tell you what matters for your particular mortgage application, so keep that communication open through closing.

Your Agent and Lender Should Communicate Early

When financing has a few extra moving parts, your real estate agent and lender should not be meeting for the first time after you've already submitted an offer.

We prefer that communication to happen early.

Your agent needs to understand the strength of your financing, any timing considerations, and how confidently the lender can stand behind your preapproval.

That coordination becomes even more valuable when you're considering property types that may bring their own financing questions, including condominiums, multifamily homes, new construction, or investment properties.

Financing is part of the offer strategy, not a separate process happening somewhere in the background.

Does Being Self-Employed Make Your Offer Weaker?

Not inherently.

Sellers are evaluating the complete offer, including price, financing, contingencies, timeline, and the buyer's apparent ability to get to closing.

They generally are not deciding whether they prefer someone with a W-2 over someone who owns a business.

A well-qualified self-employed buyer with a strong preapproval and an organized lender can present a very strong offer.

This is one reason preparation matters so much. When your financing has already been thoroughly reviewed, your agent and lender can communicate confidently about the strength of your offer without making the seller's side wonder whether unanswered financing issues are lurking behind it.

What If Traditional Mortgage Qualification Doesn't Fit Your Income?

Some lenders offer additional mortgage programs for borrowers whose finances do not fit neatly into traditional underwriting.

You may hear terms such as bank statement loans or Non-QM loans during those conversations.

A bank statement loan generally refers to a loan program that may use bank deposit history as part of evaluating income rather than relying solely on traditional tax-return documentation.

Non-QM means "Non-Qualified Mortgage." It refers to mortgages that fall outside the federal Qualified Mortgage standards. It does not simply mean "a mortgage for self-employed buyers."

These programs can have different qualification standards, costs, rates, and risks.

We would not recommend choosing a loan based on a blog definition. If conventional underwriting does not reflect your financial situation well, ask a qualified lender what options may be available and how those options compare.

A Greater Boston Home Search Is a Team Effort

The financing piece is your lender's expertise. The home search and offer strategy are ours.

The Santana Team has deep experience helping buyers navigate Greater Boston, including 570 closings in Somerville since 2014. We've worked with first-time buyers, business owners, investors, and experienced homeowners making their next move.

We help buyers understand the local market, narrow their search intelligently, evaluate properties, prepare competitive offers, and keep communication moving between the buyer, lender, attorney, inspector, and everyone else involved before closing.

And because we're a full team, our buyers are not relying on one person's schedule to keep the process moving.

Explore Greater Boston real estate with the Santana Team.

Self-Employed Homebuyer Checklist

1. Talk with a lender early and explain exactly how you earn your income.
2. Consider comparing more than one lender, especially if your income or business structure is complicated.
3. Ask what documentation you'll need for your specific situation.
4. Understand how your lender is calculating qualifying income.
5. Get a strong preapproval before setting your home-search range.
6. Keep your financial and business records organized and current.
7. Check with your lender before making major financial or business changes.
8. Make sure your real estate agent and lender communicate before you're writing offers.

A little extra preparation upfront can prevent a lot of unnecessary stress once the right property appears.

A Somerville Break Between Open Houses

If your Labor Day weekend home search brings you through Somerville, take a break at Prospect Hill Park, just above Union Square.

The hill played an important role during the Revolutionary War, and the Prospect Hill Tower commemorates the site's history. Today, the park offers views toward Cambridge and Boston and a pretty good place to compare notes between showings.

Because there are only so many listing sheets one person should review from the driver's seat of a parked car.

Buying a Home in Greater Boston?

Whether you receive a W-2, own a business, work independently, or earn income from several different sources, your home search should begin with a clear understanding of your financing and your goals.

The Santana Team can help you build a Greater Boston home search around both, then work alongside your lender as you move from planning to touring, offers, and closing.

Additional Resources

For neutral information about preparing a mortgage application and comparing lenders, explore the Consumer Financial Protection Bureau's homebuying resources.

For additional information specifically about freelancers, contractors, business owners, and other nontraditional earners, read Rate's Getting a Mortgage in the Gig Economy for a lender's perspective on mortgage preparation.

Mortgage requirements, underwriting standards, loan programs, interest rates, and Greater Boston real estate market conditions change over time. This article is provided for general real estate information and is not mortgage, financial, tax, or legal advice. Buyers should discuss their individual circumstances with a qualified lender and other appropriate professionals.