Getting a Conventional Loan in Illinois When You're Self-Employed

Conventional Loan

Getting a Conventional Loan in Illinois When You're Self-Employed

Reviewed by the HomeMath editorial team Updated 2026-08-04

Key takeaways

Lenders typically require two full years of self-employment tax returns to verify stable income.
Your 'net' income after business expenses and deductions is the figure used for qualifying, not your gross revenue.
Illinois closings almost universally require a real estate attorney to conduct the title review and closing process.
The Illinois Housing Development Authority (IHDA) provides down payment assistance programs that can be used with conventional loans.

How Lenders Calculate Your Income

When you are self-employed, lenders ignore your gross revenue. Instead, they focus on your net income reported on your IRS Form 1040, specifically Schedule C. Lenders add back certain non-cash expenses like depreciation or home office deductions to your net income, but they subtract recurring business debts. The resulting figure is your qualifying income. Because business income fluctuates, lenders require two years of tax returns to establish a reliable average. If your income has trended downward over those two years, the lender will likely use the lower of the two years, or the average, depending on the severity of the decline.

The Role of Illinois Real Estate Law

Unlike many states that use title companies to handle the entirety of a closing, Illinois is a 'lawyer state.' This means you must hire a real estate attorney to represent your interests during the transaction. Your attorney will review your purchase contract, clear title issues, and coordinate with the lender during the closing process. Because self-employed borrowers often have complex financial documentation, your attorney and loan officer will work closely to ensure your 'paper trail' is consistent for the underwriter. Do not attempt to close a loan in Illinois without legal representation, as the standard Illinois residential contract contains specific contingencies that protect the buyer, provided they are managed correctly by counsel.

Managing Business Deductions

The primary conflict for self-employed borrowers is the desire to minimize tax liability versus the need to show high income for a mortgage. If you write off significant business expenses to lower your taxable income, you are also lowering your 'qualifying income' for a mortgage. Before applying for a loan, review your past two years of tax returns to ensure your net income supports the monthly mortgage payment you intend to take on. If your returns show insufficient income, you may need to wait until the next tax cycle to file returns that reflect higher earnings, or consider a larger down payment to lower the required monthly debt-to-income ratio.

Leveraging State Programs

The Illinois Housing Development Authority (IHDA) offers various down payment assistance programs, such as 'Opening Doors,' which can sometimes be layered with conventional financing. These programs are designed to help residents overcome the barrier of a down payment. While these programs are not exclusive to self-employed individuals, they are a vital resource for anyone facing the liquidity hurdles often associated with business ownership. Eligibility depends on credit scores, household income limits, and property location.

This information is for educational purposes and does not constitute financial, legal, or tax advice. Mortgage guidelines vary significantly between lenders and are subject to change based on secondary market requirements. Always consult with a licensed loan officer and a qualified real estate attorney in Illinois to confirm current program eligibility and documentation requirements for your specific financial situation.

FAQ

Can I use business bank statements instead of tax returns to qualify?

Some lenders offer 'bank statement loans' for self-employed borrowers, which use deposits rather than tax returns to calculate income. These are generally not standard conventional loans and often come with higher interest rates or larger down payment requirements.

Does being self-employed change my credit score requirement for a conventional loan?

The minimum credit score requirements for conventional loans generally remain the same regardless of employment type. However, because self-employment is viewed as higher risk, underwriters may look more closely at your overall financial stability and cash reserves.

What if I have been self-employed for less than two years?

Lenders typically require two years of self-employment. If you have been self-employed for at least one year and can prove you were in the same industry in a salaried position prior to starting your business, some lenders may make an exception.

Do I need to provide a profit and loss (P&L) statement?

Yes, if your most recent tax return is more than a few months old, a year-to-date (YTD) profit and loss statement is usually required. It must be signed and dated to show that your business remains profitable and stable since the last tax filing.

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