Why Self-Employed Buyers Get Denied (Even When They Make Good Money)

If you are self employed and have been denied for a mortgage, it usually has nothing to do with risk. It has everything to do with how income is measured.

The Problem, Lenders Do Not Use Cash Flow

Traditional mortgages do not care how much money hits your bank account. They care about taxable income, specifically adjusted gross income after deductions.

If you write off expenses properly, your on-paper income is often far lower than your real earnings.

You can deposit $300,000 a year and still “make” $60,000 on paper.
The lender must use the $60,000.

Why Tax Write-Offs Hurt Mortgage Approval

Common deductions that reduce qualifying income:

• Depreciation

• Vehicles and equipment

• Home office

• Meals and travel

• Cost of goods sold

• Retirement contributions

Smart tax strategy. Bad optics for underwriting.

Why Bank Statement Loans Exist

Bank statement loans solve this mismatch.

Instead of tax returns, lenders review 12 to 24 months of bank deposits to estimate income.

Important details most people miss:

• Not all deposits count

• Lenders apply expense factors, often 40 to 50 percent

• Consistency matters more than big months

These loans capture real earning power, not tax minimization.

When Bank Statement Loans Make Sense

They make sense if:

• You are self employed for two or more years

• Your tax returns are heavily written off

• Deposits are consistent and traceable

• You have strong credit and reserves

Common users include business owners, contractors, consultants, and commission based professionals.

When They Do Not Make Sense

They are usually a bad fit if:

• Deposits are erratic

• Income relies on one-time spikes

• You qualify cleanly with a traditional loan

• You are extremely rate sensitive

These loans often come with higher rates and larger down payments. They are a tool, not a shortcut.

The Real Reason Self-Employed Buyers Get Denied

Most denials happen because:

• The wrong loan program was used

• Income was evaluated incorrectly

• Tax strategy and financing goals were never aligned

Self employed buyers do not need looser rules.
They need the right structure.

Bottom Line

If you are self employed, the question is not “Can I qualify?”

It is which loan program fits how I actually earn money.

Getting that right before you shop saves time, stress, and expensive surprises.