Yes, and the rules are more specific than most self-employed buyers expect: lenders generally want two years of filed federal tax returns showing the income, not two years of good deposits. The harder problem is usually not approval, it is that the income a lender will count is lower than the income you live on, because it starts from what you wrote down after deductions.
We work with a lot of buyers who own what they do. Film and television freelancers who work out of the studios on 23rd Street, charter captains at Wrightsville Beach and Carolina Beach, contractors and trades riding the Brunswick County build-out, hair stylists and restaurant owners, short-term rental owners at the beach towns, and plenty of agents. Every one of them has asked some version of this question, usually after a lender asked for a document they did not expect.
Here is the part worth internalizing before you talk to anyone: for a self-employed borrower, the mortgage file is built out of your tax returns. Not your gross receipts, not your bank balance, not what your accountant says the business is worth. Your returns. That single fact drives everything below.
How many years of self-employment do you need?
On a conventional loan, Fannie Mae’s Selling Guide tells lenders to obtain two years of signed individual federal returns with all schedules, or IRS transcripts for the same period, and generally to establish a two-year history of prior earnings. There are two openings in that. One year of personal and business returns can be enough when the business has existed for five years and you have held at least a 25 percent ownership share for five consecutive years. Less than two years can be considered when your most recent signed returns reflect a full twelve months of self-employment income from the current business and the file shows you earning at the same or a greater level beforehand in a similar field.
FHA draws the line in a similar place with different wording. The HUD handbook lets a lender consider self-employment income if you have been self-employed at least two years, and if you are between one and two years in, only if you were previously employed in the same line of work, or a related occupation, for at least two years. So the carpenter who worked for a builder for six years and went out on his own fourteen months ago has a path. The buyer who left an unrelated career to open a business last spring generally does not, not yet.
- Self-employed means a 25 percent or greater ownership interest in the business HUD Handbook 4000.1, Self-Employment Income, read November 7, 2026
- Two years of self-employment to count the income; one to two years only with two years of prior work in the same or a related field HUD Handbook 4000.1, read November 7, 2026
- FHA uses the lesser of your two-year average or your one-year average of gross self-employment income HUD Handbook 4000.1, read November 7, 2026
- A greater than 20 percent decline in effective income over the analysis period forces a downgrade to manual underwriting HUD Handbook 4000.1, read November 7, 2026
- Conventional: two years of signed individual returns, or one year if the business is five years old and you have held 25 percent for five consecutive years Fannie Mae Selling Guide, Underwriting Factors and Documentation for a Self-Employed Borrower, published November 4, 2026
- 30-year fixed mortgage, 7.18 percent Freddie Mac Primary Mortgage Market Survey, week ending November 5, 2026
Why does the lender’s number come out lower than yours?
Because underwriting starts at the bottom of your Schedule C, not the top. Every deduction that lowered your tax bill also lowered the income a lender can use. Vehicle expense, home office, equipment, meals, the aggressive mileage number your tax preparer was proud of: all of it comes off. Depreciation and some non-cash items get added back, which helps, but the general direction is down.
We see the sharpest version of this with buyers who had a strong year followed by an average one. On FHA, the handbook requires the lender to use the lesser of your two-year average or your one-year average, so a great most-recent year does not pull the number up. It can only be dragged down by the weaker year. And if the business shows more than a 20 percent decline across the analysis period, the file has to be manually underwritten, which means a human applies judgment instead of an automated approval, and that takes longer and asks more questions.
There is a timing wrinkle too. If more than a calendar quarter has passed since your most recent year-end return was filed, FHA requires a year-to-date profit and loss statement, and a balance sheet unless you file Schedule C income. In practice that means a buyer shopping in November is handing over a P&L through October, and that statement needs to agree with the returns behind it.
What does this mean at Wilmington prices?
Run the arithmetic on a typical local purchase. Our New Hanover County market update puts the median sale price at $464,000 for the three months ending September 2026, down 1.3 percent year over year, with the typical home taking 61 days to go under contract. At the Freddie Mac 30-year average of 7.18 percent for the week ending November 5, 2026, a buyer putting 20 percent down borrows $371,200 and pays about $2,515 a month in principal and interest before taxes and insurance. Coastal insurance and flood coverage sit on top of that, and in this market they are not small.
A lender tests that payment against the income shown on your returns, not against your deposits. So the practical question for a self-employed buyer in New Hanover, Brunswick or Pender County is not “can I get approved,” it is “what price does my filed income support, and am I willing to buy at that number.” That is a planning conversation, and it is much better to have it in October than in March. Our monthly mortgage update tracks where rates sit, and our Buyer Advantage Program is where we start that planning with buyers.
One more local note. Sixty-one days on market means sellers are not fielding six offers in a weekend the way they were three years ago, which is genuinely good news for a self-employed buyer. A file that needs an extra ten days for a P&L and a transcript is far less likely to lose a house now than it was in 2022.
Three honest caveats. First, if you write off aggressively and you want to buy soon, you may have to choose between a lower tax bill and a bigger pre-approval, and that choice has to be made before you file, not after. We cannot undo a filed return and neither can your lender. Second, bank statement and other non-qualified mortgage programs do exist for self-employed borrowers, and they will count deposits instead of returns, but you pay for that in rate and in down payment, and we will tell you plainly when we think the trade is not worth it. Third, we are agents, not lenders or tax preparers. The two-year averages and add-backs in your file are your loan officer’s calculation and your CPA’s planning, and anyone in our position who tells you exactly what you will qualify for before a lender reads your returns is guessing.
Related questions people also ask
Do I need two years of tax returns to buy a house if I am self-employed?
Usually yes. Fannie Mae’s Selling Guide directs lenders to obtain two years of signed individual federal tax returns with all schedules, or IRS transcripts covering the same period, and FHA’s handbook sets a two-year minimum length of self-employment before the income can be counted. Both allow narrower one-year paths, Fannie when the business is five years old and you have held at least a 25 percent share for five consecutive years, and FHA when you spent at least two years in the same or a related line of work before going out on your own.
Can I use bank statements instead of tax returns for a mortgage?
Not on a conventional or FHA loan, where the income has to come off filed returns. Some lenders offer non-qualified mortgage programs that qualify a self-employed borrower from business bank deposits instead, and those are real products with real closings, but they typically carry a higher interest rate, a larger down payment requirement and tighter reserve rules than a conventional loan. Treat one as a deliberate trade rather than a shortcut, and compare the total cost over the years you actually expect to hold the house.
Does an LLC or S corporation change how a lender counts my income?
It changes the paperwork more than the principle. Ownership of 25 percent or more of a business makes you self-employed for underwriting purposes regardless of the structure, so a sole proprietor, a partner, an LLC member and an S corporation shareholder all land in the same bucket. What differs is which returns and schedules the lender collects, including business returns and K-1s, and how distributions, retained earnings and any salary you pay yourself are treated in the calculation.
Pull your last two filed federal returns, including every schedule, and send them to a loan officer for a real income calculation before you look at a single house. That one step turns an unknown into a price range, and it is the difference between shopping and wondering. If you want help lining up a lender who works with self-employed files often, and a plan for what to do if the number comes back lower than you hoped, talk it through with our team.
Sources: HUD Handbook 4000.1, Self-Employment Income (TOTAL), read November 7, 2026; Fannie Mae Selling Guide, Underwriting Factors and Documentation for a Self-Employed Borrower, Selling Guide published November 4, 2026; Freddie Mac Primary Mortgage Market Survey 30-year fixed average, week ending November 5, 2026, via FRED series MORTGAGE30US; Tidal Realty Partners New Hanover County market update, three months ending September 2026. Payment figure is our own arithmetic on those two inputs.
