Mortgages for Self-Employed Independent Contractors

For many years, buying a home has been difficult for small business owners, contractors, and the self-employed. If you own a small business or you’re one of the millions of self-employed and gig economy workers in Hawaii and the mainland U.S., take heart: we know you’re out there—and we offer the alternative document mortgage programs for people just like you.

We look beyond tax returns.

Look, we get it. Lots of small businesses owners, independent contractors and self-employed professionals don’t quite fit in the box for conventional home mortgage underwriting criteria.

Self-Employed, Independent Contractors, and Asset Depletion

You may have excellent cash flow, but your tax returns don’t accurately reflect your capacity to repay a mortgage. Much of that cash flow is reinvested in the business or into retirement accounts, maximizing your deductions and making your income appear artificially low.

If this describes you and your business, an Alternative Document Loan program from Pacific Home Loans might just be the solution. We’re not concerned with your tax returns. If you have at least moderately good credit (you don’t need to be perfect!), you can qualify for a home loan with just 12 months of bank statements.

With good credit, acceptable levels of debt relative to your income, and a year’s worth of bank statements that show an adequate capacity for making your mortgage payments on time, you have an excellent chance of qualifying to purchase the home of your dreams!

Myths and Misconceptions

Myth: Self-employed and small-business owners have to get expensive “hard money” loans.

Fact: It’s very possible for you to qualify for a regular 30-year fixed or adjustable rate mortgage. You don’t have to pay high hard money loan fees, and you don’t have to worry about a balloon payment due in 1-3 years.

Don’t get us wrong: A hard money loan can be a great solution in some circumstances—but very often, we find that borrowers are simply not fully aware of their options.

Myth: I have a lot of assets, but they’re in a retirement account. I didn’t take any money out last year, so it doesn’t show up as income. I can’t get a mortgage until my income goes up.

Fact: Many lenders know that your retirement account is readily convertible to income – especially once you’re age 59½ or older and no longer have to pay early withdrawal penalties on tax-deferred retirement accounts. A technique called asset depletion is used to factor your potential income from retirement accounts into your income reporting.

At first that may sound like a negative, but it’s not: it’s simply the understanding that you’ll be making withdrawals from your retirement account over the term of the loan, and that these withdrawals will be the source of at least part of your income.

So, let’s say you’re over 60, you have $1 million in assets in a retirement account, you’re planning to retire soon, and interested in a 30-year mortgage.

With a depleting asset underwriting program, that $1 million will be divided by 360 months (the number of months in a 30-year term). The result, $2,777.77, will be added to your other sources of income, and that will determine how much you can borrow. Including this asset depletion figure results in a much higher income than you may have shown on last year’s income tax statement.

If you’re age 59 ½ or older, you will most likely be credited 100 percent of your retirement account assets when the underwriter calculates your income. For younger people, the calculation may use a reduced amount such as 70 percent of your retirement assets. Each lender has their own underwriting guidelines.

If the aforementioned retirement account income calculation is not sufficient for you to qualify, you may be eligible for a less conservative calculation where we simply set up a distribution from your retirement account equal to a minimum of 36 distributions from the date you close.

Can I use non-retirement assets?

Yes, you can! If you have a limited income, but you have substantial assets in another type of account that you were prefer not to utilize for a down payment, you may be allowed to use it in the same way as a retirement account. With the alt doc loan program, any asset that is reasonably stable that you can draw on over the length of your loan to make your mortgage payments can be considered. In some cases, the program will only credit 70 percent of your assets for this purpose, or they may disallow using certain kinds of assets that aren’t liquid or are considered risky.

The most important takeaway is this: if you are self-employed, a small business owner, an independent contractor, or you have an artificially low income on your tax return, but still have the capacity to pay a mortgage, we have loan programs that fit your needs.

Call Pacific Home Loans today at (808) 891-0415 to get pre-qualified, and start shopping for that dream home! Or fill out our online application here.

Mahalo from all of us at Pacific Home Loans.

To learn more about our self-employed or asset qualification Alternative Document Home Loans, please visit the following pages here on our website:

Self-Employed Borrower
No tax returns needed – Qualify with 12 months’ bank statements
Bank Statement Loan

High Net Worth Borrower
No employment or income needed. It is possible to qualify based on assets alone – The Asset Depletion Loan can be used concurrently with the Bank Statement Loan.
Asset Depletion Loan

Investor – No Income Verification Loan
The applicant will complete the traditional underwriting process with no income verification.
No Income Verification Loan

Get Pre-Qualified
Contact Us


Pacific Home Loans, Inc.
DBA Pacific Home Loans
NMLS: 278194
CA BRE License 02076479
Federal Trade Mark:
Pacific Home Loans