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

Conventional Loan

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

Reviewed by the HomeMath editorial team Updated 2026-08-06

Key takeaways

Minimum credit score for most conventional loans is around 620.
Down payment typically ranges from 5% to 20% of the purchase price; 20% avoids private mortgage insurance.
Total debt‑to‑income (DTI) ratio is usually limited to 45%, with a housing‑only limit near 36%.
Self‑employed borrowers must supply two years of personal and business tax returns plus profit‑and‑loss statements.

Conventional loans are not backed by the federal government, so lenders apply strict underwriting standards. If you’re self‑employed in Tennessee, you’ll need to meet those standards while also proving that your business income is stable enough to support a mortgage.

Key Requirements

Credit score: Most lenders look for a score of 620 or higher. A higher score can improve your rate and reduce the need for a larger down payment.
Down payment: Expect to put down at least 5% of the home’s price. Putting down 20% eliminates private mortgage insurance (PMI), which can lower your monthly payment.
Debt‑to‑income (DTI) ratio: Lenders typically cap total DTI at 45% and the front‑end (housing) portion at about 36%.

Why Documentation Matters

Because you don’t receive a W‑2, lenders rely on tax returns and profit‑and‑loss statements to verify income. They usually require:

Two years of personal federal tax returns (Form 1040) showing Schedule C, E, or F as applicable.
Two years of business tax returns (if you file a separate entity return, such as Form 1120 or 1120S).
Year‑to‑date profit‑and‑loss (P&L) statements prepared by a qualified accountant.
Bank statements that demonstrate cash reserves and consistent deposits matching reported income.

Tennessee‑Specific Considerations

Tennessee does not levy a state income tax on wages, which means your take‑home pay may be higher than in many other states. However, lenders still evaluate the same federal tax information for loan qualification. Most closings in Tennessee are handled by a title company or an attorney, so be prepared to work with one of these professionals during the settlement process. Additionally, the Tennessee Housing Development Agency (THDA) offers down‑payment assistance programs that can be paired with a conventional loan for eligible first‑time buyers.

Steps to Strengthen Your Application

Maintain a clean personal credit report by paying all bills on time.
Separate personal and business finances; avoid commingling accounts.
Keep detailed, up‑to‑date bookkeeping so your P&L statements accurately reflect earnings.
Save additional cash reserves beyond the down payment to show lenders you can cover unexpected expenses.

This article provides general information and is not personalized financial advice. Consult a qualified mortgage professional or financial advisor for guidance tailored to your situation.

FAQ

Can I qualify for a conventional loan if my business income varies from year to year?

Lenders look for consistency, so they typically average your net income over the most recent two years of tax returns. If one year shows a dip, a strong second year or additional cash reserves can help offset the variation.

Do I need a CPA to prepare my tax returns for loan approval?

A CPA isn’t required, but lenders prefer professionally prepared returns because they are less likely to contain errors. A CPA can also provide the detailed profit‑and‑loss statements that many lenders request.

How does Tennessee’s lack of a state income tax affect my mortgage application?

The absence of a state income tax doesn’t change the federal documentation lenders require, but it can increase your disposable income, which may improve your DTI calculation.

What role does a title company play in a Tennessee closing?

In Tennessee, title companies conduct the title search, issue title insurance, and often handle the closing paperwork. They ensure the seller’s ownership is clear and that the buyer receives a marketable title.

Can a co‑borrower improve my chances of getting a conventional loan?

Yes. Adding a co‑borrower with strong credit and stable income can lower the overall DTI ratio and increase the combined credit profile, making approval more likely.

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