Fannie Mae considers you self-employed if more than 25% of a business. If you are newly self-employed, you already face many challenges getting your business up and running successfully. Very few lenders are willing to add a mortgage to that challenge. So, hurdle number one is that you need to establish a track record–in most cases at least two years in your new line of work.

Second, you have to show that the business generates enough cash flow to make a mortgage payment. And keep careful records of that income. If you show revenue on your books but then deposit it into a personal account (or split it between a personal and a business account), you may not be given full credit for it. So once your business has filed a tax return or two, and you can back it up with current financial statements and bank records, the lender can take a look at your income.

There’s more to analyzing income than grabbing the bottom line off the Schedule C. Some items, like depreciation, get deducted from your taxable income but are added back for underwriting purposes. Depreciation isn’t actually money that leaves the business; you don’t pay a “depreciation bill” each month. So it counts as cash you have access to for making mortgage payments. Conversely, you’ll be adding back that exclusion for meals–underwriters assume that you eat even if you aren’t with a client! If you deduct employee business expenses on a Form 2106, those get subtracted as well.

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