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

Conventional Loan

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

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

Key takeaways

Lenders typically require two years of self-employment history, verified through federal tax returns, to establish income stability.
Qualifying income is calculated using your net adjusted income—after business expenses and deductions—rather than your gross revenue.
Michigan homebuyers may qualify for the MSHDA Down Payment Assistance program, which provides forgivable loans to help with closing costs or down payments.
You will likely need to provide a year-to-date profit and loss statement to prove your business remains profitable since your last tax filing.

Securing a conventional mortgage as a self-employed borrower requires a different approach to documentation than that of a traditional W-2 employee. Because you do not have a steady paycheck to verify, lenders must look at your business's long-term profitability to assess your ability to repay the loan. In Michigan, the process follows federal guidelines, but you should also be aware of state-specific resources that can assist with entry into the housing market.

The Two-Year Documentation Standard

Lenders generally look for a two-year history of self-employment. This requirement exists because business income can be volatile, and a two-year window helps the lender see how your business performs over different economic cycles. You will be expected to provide your last two years of federal personal and business tax returns, including all schedules. If you have been self-employed for less than two years but at least one year, you might still qualify under specific circumstances, but lenders will require more rigorous documentation of your industry experience and financial trajectory.

How Income is Calculated

One of the most significant hurdles for self-employed applicants is the difference between gross revenue and qualifying income. You likely work with a tax professional to maximize business deductions, which lowers your taxable income. However, for a mortgage, that lower taxable income is exactly what the lender uses to determine your debt-to-income (DTI) ratio. Lenders typically add back certain non-cash expenses, such as depreciation or business-use-of-home expenses, but they will subtract your actual business expenses. Before applying, it is helpful to review your tax returns to see what your "net" income looks like after all deductions are taken.

Michigan-Specific Considerations

Michigan is a "title company" state, meaning you will typically work with a title company to handle the closing process, rather than requiring an attorney for every real estate transaction. This can streamline the closing phase significantly. Additionally, Michigan offers the Michigan State Housing Development Authority (MSHDA) program. If you are a first-time homebuyer or purchasing in a targeted area, MSHDA offers down payment assistance that can be paired with conventional loans, helping to lower the cash-to-close burden for entrepreneurs who may have cash tied up in business operations.

Maintaining Current Financial Records

Because tax returns only provide a historical snapshot, lenders will often require a year-to-date (YTD) profit and loss statement. This document confirms that your business remains active and profitable in the months since you filed your last return. Ensure this statement is signed and dated, as it serves as a critical bridge between your past tax filings and your current financial reality.

This information is for educational purposes only and does not constitute financial or mortgage advice. Mortgage requirements, state programs, and lending guidelines are subject to change. Always consult with a licensed loan officer in Michigan to discuss your specific income structure and to obtain a personalized assessment of your eligibility.

FAQ

Does my business structure (LLC vs. Sole Proprietorship) change how I apply?

Yes, the documentation required varies. If you are a sole proprietor, your personal tax return is usually sufficient, but if you own a corporation or partnership, the lender will likely require the business's separate tax filings to analyze your ownership percentage and verify that you have the authority to use business funds for a down payment.

Can I use business bank account funds for my down payment?

Yes, but you must prove that withdrawing the funds will not negatively impact your business's solvency. Lenders will often require a letter from your CPA or a clear explanation demonstrating that the business has enough remaining liquidity to continue operations after the down payment is withdrawn.

What is a 'Debt-to-Income' (DTI) ratio, and why is it stricter for me?

The DTI ratio measures your monthly debt payments against your gross monthly income. For self-employed borrowers, lenders are often more conservative with DTI ceilings because your income is subject to market fluctuations, whereas a W-2 employee's income is typically fixed.

Is it better to show less income on my taxes to pay lower taxes, or more income to qualify for a bigger loan?

There is a direct trade-off between tax efficiency and mortgage eligibility. If you minimize your reported income to reduce your tax liability, you effectively lower the maximum mortgage amount for which you can qualify; you must balance your tax strategy with your homebuying goals.

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