If you’re self-employed, buying a home comes with unique challenges. While the mortgage calculation formula is the same as for traditional employees, lenders evaluate your income differently, and you’ll need to prepare more documentation. For a deeper dive into mortgage strategies, visit our Calculating a Mortgage Loan
This guide walks you through how to calculate your mortgage loan as a self-employed borrower—and what to consider before applying.
1. The Mortgage Formula (Same for Everyone)
Regardless of your employment type, the base formula for principal and interest is the same:
Where:
M = Monthly payment
P = Loan principal
r = Monthly interest rate (annual ÷ 12)
n = Number of payments (years × 12)
Example:
Loan = $300,000
Rate = 6% (0.005 monthly)
Term = 30 years (360 payments)
Payment = ≈ $1,799/month (before taxes, insurance, and PMI).
2. How Lenders Evaluate Self-Employed Borrowers
The difference isn’t in the math—it’s in proving income. Lenders often look at:
2 years of tax returns (sometimes 1 if your business is stable).
Average net income after deductions (not gross business revenue).
Consistency of income—steady or increasing is better.
Debt-to-Income (DTI) ratio—your total debt payments divided by income.
👉 Important: Many self-employed borrowers deduct heavily for tax savings, which can reduce reported income and lower loan eligibility.
3. Estimating Affordability When Self-Employed
As a self-employed borrower, calculate more conservatively:
Take-home income – Use net income from tax returns, not gross revenue.
Apply the 28/36 rule – Mortgage payment ≤ 28% of income; all debts ≤ 36%.
Include PITI + PMI – Principal, interest, taxes, insurance, and mortgage insurance if required.
4. Example for a Self-Employed Borrower
Business net income (per tax returns): $80,000/year → $6,666/month
28% of monthly income = ≈ $1,866 → suggested mortgage limit.
With current rates, this supports a loan of around $310,000–$325,000, depending on term and down payment.
5. Strategies for Self-Employed Borrowers
Prepare Documentation – Tax returns, profit & loss statements, bank statements.
Build a Larger Down Payment – Reduces risk for lenders and may remove PMI.
Keep Business Finances Clean – Avoid mixing personal and business expenses.
Improve Credit Score – Higher scores can offset lender concerns.
Show Consistency – Avoid big swings in reported income year to year.
6. Special Loan Programs for the Self-Employed
Some lenders offer alternatives like:
Bank Statement Loans – Qualify using 12–24 months of bank deposits instead of tax returns.
Non-QM Loans – Flexible qualification but often higher rates.
FHA/VA Loans – May allow more flexibility if you qualify.
Conclusion
Calculating your mortgage payment as a self-employed borrower uses the same formula as anyone else—but qualifying for that loan takes extra preparation. By understanding how lenders view self-employed income and planning conservatively, you can set realistic expectations and improve your chances of approval.