Who is considered self-employed for a mortgage?

You are typically treated as self-employed for underwriting if you:

• Own 25% or more of a business (LLC, S-corp, C-corp, partnership)
• Receive 1099 income as an independent contractor
• File Schedule C as a sole proprietor
• Receive K-1 income (partnership/LLC/S-corp)

Even if you pay yourself W-2 wages, business ownership can still trigger self-employed documentation requirements.

How lenders calculate self-employed income (the part that surprises people)

Mortgage lenders generally qualify self-employed borrowers using documented income from tax returns. That means your gross revenue does not equal qualifying income.

What usually matters most

• Two-year income trend (stable or increasing is best)
• Net income after expenses (write-offs reduce qualifying income)
• Business stability and likelihood of continuing
• Consistency in the line of work

If you plan to buy in the next 6–12 months, your tax strategy can directly impact your buying power. If your returns show very low net income because of aggressive write-offs, you may still qualify, but often for less money (or you may need an alternative program).

Documents you’ll typically need (Kentucky self-employed borrowers)

Most approvals start with a clean documentation package. Common items include:

Tax and income documentation

• Two years personal federal tax returns (all pages and schedules)
• Two years business tax returns (if applicable)
• Year-to-date profit and loss (P&L)
• Balance sheet (often required for corporations)
• 1099s (if applicable)

Business verification

• Business license (if applicable) and/or Secretary of State registration
• CPA letter (sometimes requested) verifying you’re self-employed and the business is active
• Proof the business is operating and in good standing

Banking and assets

• Personal bank statements (typically 2 months)
• Business bank statements (sometimes requested, especially if deposits need support)
• Documentation for large deposits (paper trail is critical)

If underwriting sees inconsistent deposits, commingled accounts, or large unexplained deposits, it can slow the file down. Clean documentation reduces conditions and shortens the approval timeline.

Best mortgage options for Kentucky self-employed borrowers

FHA loans for self-employed borrowers in Kentucky

FHA can be a strong fit for self-employed buyers because the down payment is low and underwriting can be flexible when the file is properly documented. You still must document income using tax returns.

• Down payment can be as low as 3.5% depending on credit and lender requirements
• Self-employed income is typically averaged over two years
• One year of self-employment may be possible in limited cases with strong related history

Read next: Kentucky FHA loans with 3.5% down

VA loans for self-employed veterans in Kentucky

VA loans can allow zero down for eligible borrowers. Self-employed VA approvals are very achievable with stable tax returns and clean documentation.

• Zero down payment possible (if eligible)
• Residual income rules apply
• Income must be stable and likely to continue

Read next: Kentucky VA loan guide

USDA Rural Housing loans (0% down in eligible Kentucky areas)

USDA loans can be a powerful option for self-employed Kentucky buyers purchasing in eligible rural and suburban locations. Address eligibility and household income limits apply.

• Zero down payment possible in eligible areas
• Household income limits apply
• Underwriting expects stable, documented income

Read next: Kentucky USDA loan (zero down) overview

KHC down payment assistance for self-employed Kentucky borrowers

KHC assistance can help with down payment and closing costs for eligible Kentucky buyers. Self-employed borrowers can qualify, but you still must meet documentation and program requirements.

• You must qualify under FHA, VA, USDA, or Conventional rules first
• Income limits and eligibility rules apply
• Expect a fully documented income file (tax returns are key)

Read next: KHC loan programs and down payment assistance

Conventional loans (Fannie Mae) for self-employed borrowers

Conventional financing can work very well for self-employed borrowers with strong credit and consistent income.

• Income is typically averaged over two years
• Declining income can reduce qualifying income
• Down payment options vary by scenario

If you want the fastest “yes/no” answer, start with a tax return review and a clear plan for documentation.

Approval tips that keep self-employed files from getting stuck

1. Do not assume gross revenue equals qualifying income. Underwriting uses what’s on tax returns.
2. Keep personal and business finances separate where possible.
3. Avoid large cash deposits. If you deposit funds, document the source.
4. Keep taxes current and file on time.
5. If buying soon, review your returns before filing (tax strategy impacts mortgage strategy).

Want a fast answer on what you can qualify for? The most efficient path is a quick review of your last two years of tax returns and your year-to-date P&L.

Call or Text: 502-905-3708 | Email: kentuckyloan@gmail.com | Apply: Start your mortgage application

FAQ for Kentucky self-employed mortgage approvals

Can I get approved in Kentucky if I’m self-employed and don’t have pay stubs?

Yes. Self-employed borrowers can qualify by documenting income using tax returns, business financials, and a stable income history instead of pay stubs.

How many years of self-employment do I need?

Two years is most common. In certain cases, one year may be possible with a strong related work history and stable income trend.

What if I write off a lot of business expenses?

Underwriting typically uses net income shown on tax returns. Heavy write-offs can reduce qualifying income and lower the mortgage amount you can be approved for.

Can self-employed borrowers use KHC down payment assistance?

Yes, if you meet KHC eligibility (including income limits) and qualify under the base loan program guidelines using documented income.

What are the fastest ways to strengthen a self-employed mortgage file?

Clean tax returns, a current year-to-date P&L, a stable income trend, strong credit, separated business/personal finances where possible, and a paper trail for deposits are the biggest wins.