A lot of the people I work with in Redding don’t get a W-2. They run a contracting business, cut hair out of a suite on Hilltop, drive for themselves, own a ranch supply shop, or do remote consulting from a home office in Palo Cedro. Shasta County runs on small business, and that’s one of the things I love about it.
But when those folks sit down to buy a home, they often hear something discouraging: “Your income doesn’t count the way you think it does.” That’s frustrating when you know you’re making good money.
The good news is that self-employed buyers get approved every day. It just takes a little more planning. Here’s how lenders actually look at your income, what loan options exist, and what you can do now to make the process smoother.
Why Self-Employed Buyers Get Treated Differently
A lender’s main job is to answer one question: Is this income likely to keep coming in? With a W-2 employee, a pay stub and a phone call to HR mostly answer it. With a business owner, the lender has to look at the business itself.
Under Fannie Mae guidelines, you’re generally considered self-employed if you own 25% or more of a business, and 1099 contractors usually fall into the same bucket. That means your loan file will lean on your tax returns rather than your bank deposits or gross sales.
Here’s the part that surprises people: lenders qualify you on the income you reported to the IRS, not what came through the door. Every deduction that lowered your tax bill also lowers your qualifying income. That’s not a penalty. It’s just how the math works.
The Two-Year Rule (and When One Year Can Work)
For a conventional loan, lenders typically want a two-year history of self-employment income, documented with your signed personal tax returns (and business returns, if you file them separately). They average the income across those years.
There is some flexibility. Fannie Mae allows a self-employed borrower with less than two years in business to qualify if the most recent tax returns show at least 12 months of income from the current business, and you have a track record of earning similar money in the same line of work. Think of an electrician who worked for a Redding contractor for eight years, then went out on his own.
For businesses that have been around five years or more, the automated underwriting system will sometimes ask for only one year of returns. Your lender won’t know until they run your file, so it’s worth asking early.
A few other things lenders watch closely:
- Declining income. If 2025 was noticeably lower than 2024, expect questions, and possibly a lower qualifying number.
- Year-to-date numbers. Depending on timing, a lender may ask for a profit-and-loss statement for the current year.
- Business stability. A business license, CPA letter, or proof your business is still active is common.
Add-Backs: Income You Might Not Know You Have
Not every deduction hurts you. Lenders use a cash-flow analysis (Fannie Mae’s Form 1084 or similar) that adds back certain non-cash expenses, because they reduced your taxable income without actually taking money out of your pocket.
Common add-backs include:
- Depreciation on equipment, vehicles, or property
- Depletion (less common, but it comes up with timber or mineral income)
- Business use of home deductions
- Certain one-time, non-recurring losses, with documentation
For a contractor with a couple of work trucks and a trailer, depreciation alone can make a meaningful difference. This is one reason I always tell self-employed clients to hand their full returns to a lender who works with business owners regularly, rather than guessing from the bottom line.
Bank Statement Loans and Other Non-QM Options
If your tax returns don’t tell the whole story (maybe you’re newer in business, or you write off a lot), there are non-QM (“non-qualified mortgage”) loans built for self-employed buyers. The most common is a bank statement loan.
Instead of tax returns, the lender reviews 12 to 24 months of personal or business bank statements, averages the deposits, and applies an expense factor to estimate your income. The details vary by lender, but here’s what I generally see:
- Down payment: often 10% to 20%, sometimes more
- Credit score: many programs start around 620 to 680
- Rates: usually higher than conventional, often by half a point to a point and a half
- Reserves: several months of payments in the bank is common
I’ll be honest with you: these loans cost more. With conventional 30-year rates averaging 7.40% in mid-October (Freddie Mac), a premium on top of that adds up. For some buyers, a bank statement loan is the right bridge. For others, waiting one more tax season and qualifying conventionally saves real money over the life of the loan. A good lender will show you both paths side by side.
What to Do Before You Start House Hunting
If you’re self-employed and thinking about buying in Redding, Anderson, Shasta Lake, or anywhere in the county, here’s what I’d do first:
- Talk to a lender before you file your next return. Your CPA is trying to lower your taxes. A lender wants to see income. Have that conversation with both of them before you file, not after.
- Separate business and personal money. Clean, separate accounts make underwriting (and bank statement loans especially) far easier.
- Gather two years of complete returns, including all schedules, K-1s, and business returns.
- Avoid big swings. Don’t buy a new truck on credit or open new accounts in the months before you apply.
- Build reserves. Cash in the bank after closing makes any self-employed file stronger.
- Get fully pre-approved, not just pre-qualified. With self-employed income, the document review is where surprises happen. Find them early.
How This Plays Out When You Make an Offer
Sellers and their agents in Shasta County want to know your financing is solid. A thorough pre-approval letter from a lender who has actually reviewed your returns carries real weight, especially if you’re competing with another buyer.
It also helps to build a little extra time into your loan contingency. Self-employed files sometimes need an extra round of documents, and I’d rather plan for that up front than scramble during escrow.
And if a bank statement loan is in the mix, I’ll make sure the listing agent understands it’s a legitimate, fully underwritten loan, not a red flag.
The Bottom Line
Being your own boss shouldn’t keep you from owning a home in the place you’ve built your business. It mostly means getting organized earlier and working with people who understand how self-employed income is read. A few months of planning can be the difference between a frustrating “not yet” and a confident offer.
If you’re self-employed and wondering where you stand, I’m happy to talk it through and connect you with local lenders who work with business owners every day. No pressure, just honest answers.
530-953-1100 · jcreteam.com/contact · [email protected]
About Justin Cartwright — Justin Cartwright is a third-generation Shasta County resident and licensed REALTOR® with Waterman Real Estate in Redding, CA. He and the JCRE Team specialize in helping buyers and sellers navigate the Redding and greater Shasta County market with honest guidance and genuine care. DRE License #02093872 · Waterman Real Estate, 1760 Churn Creek Rd, Redding, CA 96002 · 530-953-1100.
Sources: Fannie Mae Selling Guide, B3-3.2-01 (Underwriting Factors and Documentation for a Self-Employed Borrower) and B3-3.2 (Self-Employment Income); Freddie Mac Primary Mortgage Market Survey via FRED (week of October 15, 2026); general non-QM bank statement loan terms from published lender program guides. Loan terms vary by lender; this is general information, not lending or tax advice.
