How to Get a Self-Employed Mortgage in Tennessee

As a business owner in Tennessee, it can be difficult to find a self-employed mortgage. But, knowing how to get a mortgage as a business owner in Tennessee will help you find the right loan officer for you and show up better prepared.

In this guide to getting a mortgage when self-employed, we’ll go over what lenders are looking for, the documentation you’ll need to show up with, how to get the best self-employed mortgage in Tennessee, and the current state of Tennessee’s housing market.

Recommended: Giniel Financial Group specializes in providing home loans to Tennessee 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 Tennessee, 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 Tennessee

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 better 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 the housing market in Tennessee. Knowing how many houses are being built in the state, the availability of new homes, and more will help you find the right time and place to buy your house in Tennessee.

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 Tennessee Housing Market

According to local realtors, the Tennessee housing market is expected to see healthy growth over the next few years. The driving force behind this is that a younger population is reaching peak homebuying age and are looking for ways to secure stable housing. But, this is cause for slight concern as there are more home-seekers than available housing. 

The three major cities most newcomers are moving to in Tennessee are Nashville, Memphis, and Knoxville. All three of these cities are seeing a steady increase in the median list price of homes year over year. Luckily, each city offers some sort of down payment assistance program for homebuyers.

The most expensive of the three, Nashville, has a median list price of $448,500, making a down payment range anywhere from $13,500 to $90,000. As part of the NeighborhoodLift program, the Affordable Housing Resources (AHR) of Nashville offers assistance of up to $15,000 for those who qualify. There are income restrictions with this aid, but if you’re a veteran, teacher, member of the military, firefighter, or EMT, the income restrictions are a bit looser. 

Memphis is the most affordable of the bunch, with a median list price of homes coming in at $180,000. Through the City of Memphis, the Division of Housing and Community Development (HCD) offers up to $10,000 of assistance to those who qualify. Unless you’re a teacher, firefighter, or in the police department, there are income caps for this program.

Knoxville has seen the steepest increase in median home prices, with a year-over-year increase of over 29% from 2021 to 2022. The City of Knoxville does have a down payment assistance program. We recommend checking their website often, as the program’s funding and restrictions are updated regularly.  

Moving Forward

Now that you know what types of home loans are available to Tennessee business owners and the state of its housing availability, it’s time to find the right self-employed mortgage lender for you. Be sure to show up prepared with all the right paperwork and know what area of Tennessee is the best fit for you to live in.

Make sure you find the best mortgage lender for you by reading our Best Mortgage Lenders for LLC Owners guide. Learn more about mortgages and show up better prepared by reading our Mortgage Basics for LLC Owners article.

Recommended Lender: Giniel Financial

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

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