How to Refinance a Mortgage With Self-Employment

It's necessary to prove your income to the lender if you want to refinance.
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Before the mortgage crisis of 2008, stated-income loans were popular among the self-employed. With these, you could simply declare how much income you made to the lender, and they would approve the loan based mainly on your credit score. Things have changed drastically since then, and now the self-employed must be able to prove their income in order to obtain a mortgage or refinance their existing mortgage.

Refinance Basics

Refinance loans function very similarly to conventional mortgage loans. The refinance loan pays off the original mortgage in exchange for a lower interest rate, an extended term or cheaper monthly payments. Additionally, cash-out refinance loans are taken out for more than the balance on the mortgage and you receive the additional funds. These can be used to pay off other debts, such as credit cards or student loans. The loan application and underwriting process is very similar to the process when you first obtained your mortgage, except that you aren't dealing with a new sale.

Find Your Loan

The first step in the refinancing process is finding the loan that suits your needs. There are many mortgage lenders in business today -- all trying to promote different rates or specials. Contact a loan officer for an application. She will be able to answer any other questions you have as well. Complete the application and answer the questions honestly when asked about your income and occupation.

Proof of Income

When the loan application goes to underwriting, income verification documents are generally required. For the average employed worker, pay stubs will suffice most of the time. However, those that are self-employed must be able to prove their income through tax returns. In the eyes of the mortgage company, taxable income is the only type that will count toward loan approval. The lender will ask you to complete a 4506-T form, which authorizes the lender to obtain your tax return filings from the IRS. The underwriters analyze your tax returns for the past two years to verify your income.


It's common for the self-employed to use as many tax deductions as possible to lower the net income they must claim. However, for a mortgage loan approval, you want your net income to be as high as possible. Too many deductions might hurt your chance at getting the loan -- it might even be necessary to use a co-borrower and claim his income in order to be approved for the desired loan amount. Unlike people who work for an employer, your high credit scores or low debt-to-income ratios may not improve your approval chances. The mortgage lender wants to ensure that you can repay the loan on time every month. Not being able to sufficiently prove that your self-employment income won't give the lender a good impression.

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