Self-Employed Mortgage Glossary

Income reported to you and the IRS on a Form 1099 (rather than a W-2), typical of independent contractors and gig workers — and the basis for 1099-only loan programs that qualify you from the form itself.

Non-cash or non-recurring deductions a lender adds back to your net profit when calculating qualifying income — because they lowered your taxable income without actually reducing your cash flow.

A non-QM loan that converts your liquid assets into a calculated monthly income stream, qualifying borrowers who have substantial savings or investments but limited documentable income.

A non-QM mortgage that qualifies self-employed borrowers on the deposits flowing into their bank accounts — typically 12 or 24 months of statements — instead of on tax returns.

A lender's specific set of rules for a bank statement loan — how many months it reviews, whether it uses personal or business accounts, and what expense factor it applies — which varies widely from lender to lender.

The percentage of your gross monthly income that goes toward debt payments, including the proposed mortgage — one of the most important numbers in any loan approval.

A pattern in which a self-employed borrower's income has fallen year over year — a red flag that leads lenders to use the lower, more recent figure and demand an explanation.

A non-cash tax deduction that spreads the cost of business property over its useful life, lowering taxable income without reducing cash flow — which is why lenders add it back when calculating qualifying income.

The percentage a bank statement lender subtracts from your deposits to estimate business expenses, leaving the qualifying income they will actually count.

The distinction between what a business takes in (gross) and what remains after expenses (net) — the gap that explains why self-employed borrowers often look poorer to lenders than they really are.

A home loan for borrowers who file taxes with an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number — typically a non-QM program serving immigrants and others without an SSN.

The income reported on a Schedule K-1 to partners in a partnership or shareholders in an S-corporation — a key document lenders use to qualify self-employed business owners who don't file a simple Schedule C.

The ratio of your loan amount to the property's value, expressed as a percentage — a key measure of risk that drives down payment requirements, interest rates, and whether mortgage insurance applies.

A loosely used term for low-documentation mortgages that require little or no income verification; today these are non-QM programs (often asset- or DSCR-based) that still satisfy ability-to-repay rules — not the unchecked "stated income" loans of the pre-2008 era.

A mortgage that does not meet the federal Qualified Mortgage (QM) standards — usually because it documents income in a flexible way — yet still must satisfy the lender's ability-to-repay obligation.

A property the borrower lives in as a primary residence — an occupancy status that earns the best mortgage rates and terms, and carries legal obligations a borrower must not misrepresent.

A non-QM loan that qualifies you from a profit-and-loss statement — usually prepared or signed off by a CPA — instead of tax returns or bank statements.

A financial statement summarizing a business's revenue, expenses, and net profit over a period — used by lenders, often when CPA-prepared, to document a self-employed borrower's income.

The income figure a lender actually uses to approve your loan and calculate your debt-to-income ratio — which, for the self-employed, is rarely the same as either your gross revenue or your gross pay.

Liquid assets you must have left over after closing — measured in months of mortgage payments — that prove to a lender you can keep paying if income dips.

The IRS form (Profit or Loss From Business) that sole proprietors and single-member LLCs use to report business income and expenses — the document a mortgage lender reads first to understand a self-employed borrower.

The length of time funds have sat in an account, or that you have owned a property, before a lender will treat them as established — used to confirm money and equity are genuinely yours.

A mortgage applicant who earns income from a business they own rather than from an employer — generally anyone with 25% or more ownership of a business — and who is therefore underwritten on income they must document themselves.

The Social Security and Medicare tax that self-employed people pay on their net earnings — covering both the employee and employer shares — which W-2 employees split with their employer.

The common underwriting practice of averaging a self-employed borrower's income over the two most recent years to smooth out fluctuations and confirm stability.

The distinction between being a traditional employee (paid on a W-2) and an independent contractor (paid on a 1099) — the line that determines whether a lender treats you as a salaried borrower or a self-employed one.