How to Get a Self-Employed Mortgage in Arizona

Trying to find the best home loan in Arizona can seem like a complicated and difficult process — especially if you’re a self-employed business owner. But, knowing how to get a mortgage as a business owner in Arizona will help you find the right loan provider and help you be better prepared.

In this guide on how to get a mortgage when self-employed, we’ll walk you through what lenders are looking for, what documentation you’ll need to provide, how to get the best self-employed mortgage in Arizona, and an overview of the Arizona housing market.

Recommended: Giniel Financial Group specializes in providing home loans to Arizona business owners.

Qualifying for a Mortgage When Self Employed

To be considered a self-employed borrower, you must own 25% or more of a business or receive a Form 1099 for contracted services instead of a W-2. Self-employed borrowers do face additional challenges in securing a home loan, but that shouldn’t stop you from pursuing purchasing the home of your dreams.

Lenders look at self-employed borrowers with a bit more scrutiny, but you can still show up prepared. Knowing what type of business you run, arriving with proper financial documentation, and maybe even securing a co-borrower could all help convince a lender to approve you for a home loan.

There are several types of loans available to the self-employed. These include conventional loans, FHA loans, and a variety of alternative loan types. To learn more, visit our Different Types of Home Loans for Business Owners guide.

Skip ahead to:

What Lenders Are Looking For
What Documents You’ll Need
Ways to Improve Your Chances
Finding the Best Mortgage Option for You

What Lenders Are Looking For

The criteria needed for a self-employed mortgage will vary from lender to lender, but most of it will remain the same. Expect to have your financial health put under a microscope and the viability of your business to be tested. Your experience as a business owner will also be put to the test.

When applying for a self-employed mortgage in Arizona, expect your lender to look for:

• Income stability: Expect to be asked for your two most recent tax returns so your lender can verify that your income can remain stable. This lets the lender know you’ll be able to make your monthly payments well into the future.
• Business operations: To make sure your business is financially sound, expect your lender to research how your business operates. This includes where your business is located, the demand for your products or services, and how likely you are to remain profitable.
• Business duration: You will need at least two years of income documentation for your business or self-employment. The longer you’ve been in business, the better your chances of getting approved.
• Personal income: Depending on how your business is structured, you may need to provide your personal tax returns as well as your business tax returns.

What Documents You’ll Need

As we mentioned above, you will need to provide your financial and tax history for at least the last two years. Knowing what documents to expect a lender to ask for will help you show up prepared.

Use this table to find which tax documents to show up with. Note that for LLC owners, there are two options for tax return forms to bring. If your LLC has multiple members, you will need to bring Form 1065; if you are the sole member of your LLC, you will need to bring your Schedule C form.

For S corps, depending on your business structure, you will need to bring either Form 1120S or Schedule K-1.

If your business is under two years old, or you don’t have at least two years of financial documentation, you can still get a mortgage. The bottom line is your business has to have been active for at least a full year, and your most recent two years of employment must be verified.

In this case, expect your lender to look very closely at your education and background to determine your financial track record.

Other Documentation to Provide

On top of tax forms, there’s other paperwork your underwriter will most likely want or need. Most likely, you will be asked for the following:

• Employment verification: Proof that you’re self-employed. This can include emails or letters from clients, a letter from your CPA, the state or business license you hold, proof of business insurance, or even your Doing Business As (DBA) name.
• Income documentation: Besides your tax forms, your lender might also want to view your bank statements to ensure you have the funds to cover a down payment.
• IRS transcripts: Your lender may ask you to sign Form 4506-T to acquire a transcript of your tax returns to verify all the provided information is correct.
• Profit and loss statements: These documents show lenders how much total profit you’ve made after your business expenses. 
• CPA letters: A letter of explanation from your CPA will verify your self-employment status and better shine a light on your income to your lender. 
• Documentation of business funds: If you’ve been reserving a portion of your business accounts for a down payment, you will need to provide proof of these funds. To do this, you will need to get a letter from your CPA confirming removal of these funds won’t harm your business and provide a copy of your business tax returns and bank statements.

Ways to Improve Your Chances

Even if you have the required material, it can still be difficult to secure a mortgage when you’re self-employed. Here are a few more tips and tricks you can utilize to better prepare for securing a home loan as a business owner.

• Optimize your debt-to-income (DTI) ratio: The easiest way to do this is to increase your income and reduce your debts. When using a mortgage calculator, aim to look for housing on the lower end of what it says you can afford to keep your DTI ratio stable while pursuing a home loan.
• Improve your credit: Don’t make any major purchases and stay on top of making regular payments to keep your credit score on track and appealing to potential lenders.
• Prepare for a large down payment: Saving for a higher down payment will make you more attractive to future lenders as there will be less risk in them investing in you since you have a lot of cash upfront.
• Have an emergency fund: Having proof of significant cash reserves gives lenders the peace of mind that you’ll still have something in the bank, even if your business hits hard times.
• Provide further documentation: Besides all the tax forms and CPA letters, you may need to be able to provide extra documentation. This can include a list of debts and monthly payments for your business, a list of assets, additional sources of income, and proof of current rent or mortgage payments.

For a deeper dive into what it takes to get a home loan as a small business owner, be sure to read our guide to mortgage basics for LLC owners.

Get the Best Mortgage in Arizona

Now that you know what documentation you’ll need to have, it’s time to start looking for the best home loan.

One of the most important factors in finding the right mortgage will be finding the best lender. You should ask your loan officer if they have experience underwriting self-employed income. You may also want to compare lender rates to find someone who specializes in working with business owners with your budget.

Some lenders for self-employed mortgages will provide a variety of loans, ranging from conventional to more alternative types. We recommend using a lender with experience and confidence in the types of home loans a business owner might be interested in. This is why we recommend Giniel Financial Group for self-employed mortgages.

It’s also a good idea to do some research on Arizona’s housing market. Arizona is a popular state to move into, making its housing market quite competitive. Currently, around 4.6 million individuals live in owner-occupied housing within the state, while an estimated 2.3 million residents live in rental units. 

Knowing how many houses are being built, details about the state’s renter population, and more will help you find the right time and place to buy your house in Arizona.

Understanding Alternative Self-Employed Mortgage Programs

If collecting all the documentation required for a traditional mortgage feels too overwhelming, there are other options. A non-qualified mortgage (non-QM), or alternative mortgage, might be right for you. 

Some alternative loan options are:

• FHA loan: This mortgage is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. These are designed for low-to-moderate-income borrowers and often come with lower down payment requirements. However, these do come with other costs, like mortgage insurance.
• Bank statement loan: Also known as alternative document loans, these allow you to apply for a loan without submitting tax returns. Instead, lenders will look at your last two years of bank statements to assess your business income. Interest rates tend to be higher for this type of loan.
• Joint mortgage: Finding a co-borrower who is a W-2 employee to share ownership of your home is another way to improve your chances of getting approved for a loan. Your co-borrower lets the lender know there will be steady, stable income in the chance your self-employment struggles.
• Enlist a co-signer: A parent or other trusted relative willing to co-sign your mortgage loan will help you gain loan approval. However, should you default on your loan, your co-signer will assume full responsibility.
• Asset depletion: If you happen to be a high-net-worth borrower, you have the option to convert your assets into qualifying income with an asset depletion loan.

Learn more about these types of loans by reading our What Are Non-QM Loans guide.

Understanding the Arizona Housing Market

Arizona is a popular place to move within the United States, making it a competitive housing market to try to break into. In fact, the capital city of Phoenix is the fifth-largest city in the country as well as the 10th most moved-to city in 2022.

An estimated 250,000 individuals will make the move to Arizona in 2022, with the majority coming from California and Tennessee. The number of people migrating to Arizona has only increased each year, and the trend shows little sign of stopping in the future. Currently, Arizona ranks as the fifth highest in terms of population growth — holding onto its ranking from 2021.

Notable areas showing growth within the state include Queen Creek and Marana. Queen Creek has grown a staggering 126.3% from 2010 up to 52,162 residents, while Marana now has 47,164 residents — a 50% increase from its last census report. Both of these locations are seeing increases in the cost of housing but also enjoy expansion and healthy job markets that regularly attract new people.

Still, Phoenix remains one of the most attractive places to live in Arizona. This massive city has seen similar housing price increases, but its prosperous job market and lively and diverse downtown areas continue to help it attract new residents.

Given Arizona’s competitive housing market, finding a home can prove difficult at times. Of all authorized housing developments within Arizona in 2022, 71.5% are single-family homes for a total of 46,691 units. The median value of a home in Arizona is $242,000.

Renting has become more popular in Arizona over the years, but it remains secondary to purchasing a house, with 65.3% of the state’s housing units listed as owner-occupied. The median monthly cost of rent with utilities in Arizona is $1,097, and an estimated 14,000 single-family rental homes are expected to be completed by the end of 2022.

Moving Forward

Now that you know what type of home loans are available to business owners, it’s time to find the best lender for you. The Arizona housing market remains quite competitive, given the state’s popularity. With so many new residents, finding a home can prove difficult because construction of new houses can’t seem to keep up with demand. That being said, there are still opportunities to be found.

Phoenix remains the most popular place to live, but Queen Creek and Marana are becoming hotspots for business and housing for those seeking smaller, fast-growing areas. Be sure to show up prepared with the necessary documentation and know when to begin your housing search in your desired area within Arizona.

Recommended Lender: Giniel Financial

We think Giniel Financial Group is one of the best options for business owners looking to buy a home in Arizona. Click the button below to get your free quote today.

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