Buying a home is an exciting milestone. You imagine the style of your new home: a Tudor, a midcentury modern house, or maybe a two-story Victorian home with gingerbread trim. Next, you’re picturing how you’ll decorate it. You scroll through wallpaper samples online, save flooring to your Pinterest board, and pick up paint swatches for your bedroom.  

Before buying the home of your dreams, most of us must get pre-qualified for a mortgage. To do so, your lender will review your credit score, income and employment history, debt-to-income ratio, down payment, and assets and savings. Most lenders ask for W2s and tax returns to show your income and employment history.

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For small business owners, getting approved for a mortgage can be more complicated. For one thing, small business owners don’t receive W2s. Also, a small business owner’s tax return may not provide a clear picture of income. However, that doesn’t mean small business owners can’t buy homes. 

Nexa Mortgage Originator Charles Bowers has worked in the mortgage industry for nearly 20 years and before that, worked in finance at Fidelity and Schwab. He says sometimes small business owners just need to be a bit more creative when putting together financial documents for a mortgage. Here are a few of his suggestions to help small business owners qualify for a mortgage and purchase a dream home. 

Beware the tax return trap

Small business owners are incentivized to write off as much as possible on their tax returns. They can write off business expenses, like office space, internet, mileage, and other office equipment. When you write off these business expenses, it appears you have less income on your tax return. A smaller income can mean you’ll qualify for a smaller loan, or with some lenders, you may not qualify at all.

Charles also explains that most mortgage underwriters default to the worst-case scenario when looking at a person’s income. For example, if, as a small business owner, your 2024 tax return shows you made less than your 2025 tax return, the underwriter will average those two numbers to come up with your income. However, if you made less in 2025, the underwriter will simply use the 2025 tax return.

And when you’re writing off expenses for your business, it means using your tax returns as financial documents to qualify for a mortgage may not provide an accurate picture of your income, says Charles. He suggests you use other financial documents. 

Use bank statements instead of tax returns

When he’s working with small business owners, instead of relying on tax returns, Charles will use bank statements to show revenue from their business. He can pull your bank statements for the past two years, which show all the deposits into your business account. So, rather than relying on tax returns, which have expenses deducted, bank statements show the total amount of money your business brought in. 

“What lenders are typically looking for is decent credit, verifiable income, and some money to put down. I usually tell people I need at least 2 of those to get something done,” says Charles.

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Have your CPA create a profit and loss statement

Some small business owners take in more cash, so their bank statements won’t have an accurate picture of their revenue. Charles says if you’ve used the same accredited tax preparer or CPA for the past two years, you can have them generate a profit and loss statement for the past 12-24 months. You can then provide the profit and loss statements to your mortgage broker, and these documents can be used in lieu of tax returns or bank statements.

A small profit doesn’t necessarily disqualify you, either

A small income doesn’t automatically disqualify you from getting a mortgage, if your business expenses are low. Charles has helped small business owners with relatively low profits get a home. He gives the example of a dietitian, who, according to her tax return, brought in about $48,000 a year. However, the dieticians’ business expenses basically included renting a 12 x 12 office and paying for internet and a phone.  

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To calculate your gross profits, you subtract your business expenses from your total income. Shopify states, “Also referred to as net income, gross profit measures a company’s dollar amount profits after deducting its production costs. In other words, gross profit equals a business’s total sales revenue minus its costs of production, commonly known as cost of goods sold (COGS).” When they calculated her gross profits, she ended up with $82,000 income based on what she brought in and her low business expenses. He found a lender that would work with her gross annual income of $82,000 and putting 10% down on the property. 

Skip the credit union loan

Charles says credit unions are typically more stringent with the loans they approve. They want a lower loan-to-value ratio, which means you put more money down, so the loan amount is lower. Typically, a credit union prefers a loan that’s about 80% of the mortgage, so that means borrowers put 20% or more down. A credit union then holds onto these loans, so it can make money off the interest from the loans. Along with 20% down on a home, you also typically need a high credit score to qualify for a credit union loan.

Some other lenders want to write loans that can immediately be sold to Fannie Mae or Freddie Mac, says Charles. That means they want more traditionally qualifying homeowners, which typically means people who receive a W2 income or are employed by someone. 

“Many banks and credit unions don’t offer financing to small business owners because they want a loan that they can make money from. Other lenders want a more traditional loan that they can sell to Fannie Mae or Freddie Mac. So, they aren’t interested in getting more creative with the structure of mortgage documents,” says Charles. “Just because you don’t qualify for a mortgage loan with your credit union, doesn’t mean you can’t qualify. But people don’t always understand that.” 

Need money in reserves

When evaluating you for a mortgage, lenders also look at your assets and savings, so you need to have money put away and other assets. 

“You need to have some money in reserves, and some money left after you purchase a house,” says Charles. “Most lenders want you to have about 3-6 months of house payments in reserve.”

That money can be in a savings account, a retirement account, an IRA, or other investment accounts. Charles cautions that you can’t count all the money in an IRA or another type of retirement account as an asset because you have a tax liability when you take it out early.

Married or partnered couples may rely on one person’s income

If you’re buying a home with a spouse or partner, it might be easier to use the W2 income of your partner to qualify for the home loan. You can also use their W2 income combined with your bank statement income, says Charles. It all depends on whether you want both names on the mortgage (which means you are legally entitled to a portion of the home’s equity), or whether that isn’t a big deal to you. Even if your name isn’t on the mortgage, you can have your name put on the deed, which means you legally have a right to the property, but have no legal obligation to pay the mortgage.

Remember, relying on a single partner’s income can limit the loan amount. But again, a good mortgage originator can help you find creative ways to qualify for a higher loan amount, if needed.

Get your credit report in order

Another way for a small business owners to strengthen their mortgage application is to review their credit report and work on improving it, if their score is low. Charles recommends you use freecreditreport.com, which pulls your credit score from Experian. While there are many different formulas for calculating a credit score, most mortgage lenders will use Experian, Equifax, and Transunion to calculate your score. Charles says credit reporting businesses like Credit Karma or Credit Wise aren’t calculating your credit score to buy a home, but rather your ability to apply for a credit card. So, be wary. 

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If you’re applying for a mortgage with another person, the lender will typically take the lower of the two middle credit scores to use for the mortgage application. Again, if you or your partner’s scores are low, you might consider having only the person with good credit on the mortgage.

You can improve your credit score, of course. Paying off debt can help improve your credit score, though this isn’t a fast process. Most financial professionals recommend you start paying off the smallest balance first, then move on to the next smallest, and so on. 

If there’s an old collection on your report, it has typically been sold to a debt collector. Even if it’s from years ago, it can show up as a new collection if it’s been recently sold to a debt collector. 

Credit repair services may be able to get an old collection removed from your credit report. Some credit repair services aren’t reputable, and some are quite costly. A good credit repair business can argue there’s no way to prove that the debt on your credit report is your debt, says Charles. Perhaps you’ve moved since then, or your name has changed. Or, the credit repair company may argue you’ve got a common name like Mary Johnson, so how can this debt collection company prove you’re that Mary Johnson? A good, but moderately priced, credit repair company Charles has worked with is Trinity Enterprises. 

Stay current with your taxes

Even if you’re not using your tax returns to apply for a mortgage, it’s important that you’re current with tax filings as a small business owner. Charles says when you apply for a mortgage, you sign a document that says the lender can pull a tax transcript, which will show if you’re behind on your tax payments. An IRS lien will wipe out a mortgage loan, so lenders will likely not approve a home loan if you’re behind on tax payments. 

Small business owners can qualify for a mortgage, though they may need to work with a mortgage professional who’s willing to be a little more creative with their financial documents. Charles Bower is a mortgage originator in Dallas, TX, but Nexa Mortgage has offices all over the country, including Minnesota.“I would be happy to talk to any small business owners who are curious about how they can qualify for a mortgage, and I can refer them to somebody else as needed,” says Charles.