If you’re self-employed—or you work with clients who are —you already know how hard it can be to document income for a mortgage. Most people assume they’ll need two full years of tax returns, and that assumption keeps many qualified buyers sitting on the sidelines.

Here’s the good news: under Conventional financing, that’s not always true.

FHA vs. Conventional: What’s the Difference?

FHA loans are great for certain borrowers, but they come with rigid rules for self-employed applicants. FHA requires two full years of tax returns, and if the income from those years is uneven, they’ll average them.

For example:

  • 2023 income: $60,000
  • 2024 income: $120,000

FHA will average that to $90,000.
That limits qualifying income—and can shrink how much home a borrower can buy—even if the business has clearly grown and stabilized.

Conventional loans (Fannie Mae and Freddie Mac) can look at it differently.
If a borrower has been self-employed for at least five years in the same line of work, and the most recent year’s income is higher and sustainable, Desktop Underwriter (DU) may approve the loan using only that one most recent tax return.

Why That Matters

That’s a game-changer for successful small-business owners, 1099 contractors, and gig professionals whose income has taken off recently. Using just the stronger year’s income can mean:

✅ Higher qualifying income
✅ More purchasing power
✅ No need to wait another year
✅ Potentially better rates and lower overall cost compared to FHA (which also carries upfront and monthly mortgage insurance)

Who Qualifies

  • Self-employed at least five years in the same field
  • Excellent credit history (typically 700 +)
  • Most recent tax return clearly supports current income
  • Clean financials and documentation that DU can verify

Bottom Line

If your last year was your best year yet, you may not need to be held back by older, lower-income returns.
FHA looks backward. Conventional can look forward.

Realtors—this is a major opportunity to help your self-employed buyers qualify sooner and buy more home.

Let’s review your client’s scenario together and see whether one year of tax returns could be enough to make the deal work.

📞 Call or text me at (561) [YOUR NUMBER]
🌐 Visit MortgageSimplified.net
📧 Clay Edmonds, NMLS #1969637 | Complete Mortgage LLC

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