If you're self-employed, you've probably been told you need two years of tax returns to buy a home. That's the standard, but it isn't the only path. On a conventional loan, some borrowers can qualify using one year of returns, and the difference can mean buying this year instead of next.
Where the one-year option comes from
Both Fannie Mae and Freddie Mac allow underwriting to accept a single year of personal tax returns for self-employed borrowers in certain cases. This isn't a lender gimmick or a workaround. It's built into the agency guidelines, and the decision comes from the automated underwriting system when the overall file is strong enough to support it.
That last part matters. One-year documentation is a reward for a strong file, not a shortcut around a weak one.
What you need to make it work
Why 710 is the number that matters
On a conventional loan, PMI is priced by credit score. The lower the score, the more expensive the monthly insurance, and the curve gets steep fast in the 600s.
Stack that on top of a lower down payment and a one-year income structure and the payment can climb past the point of being worth it. At 710 and above, PMI stays reasonable and the whole plan holds together. If you are sitting at 690, it is often worth spending a few months raising the score before you apply.
The mistake that costs self-employed buyers the most
This is the single biggest source of confusion, and it happens in almost every first conversation with a self-employed borrower.
We qualify you on net income, not gross
A business owner tells me they made $200,000 last year. What they mean is the business brought in $200,000. After expenses, deductions, depreciation, and write-offs, the tax return might show $70,000 in net income.
Underwriting uses the $70,000. Every deduction that lowered your tax bill also lowered the income we can use to qualify you. That is the trade-off nobody explains until it is too late.
Where to find your number
Schedule C filers: net profit on Line 31.
LLC, S-Corp, or partnership: the income reported on your K-1.
Some deductions get added back, depreciation and depletion among them, so the qualifying figure is usually a bit higher than the raw net. But it is nowhere near gross revenue.
If you are buying before you file, read this first
This is where the timing gets genuinely important, and where a lot of money gets left on the table.
Your accountant's job is to minimize your tax bill. That is what you pay them for, and they are usually very good at it. But aggressive deductions in the year before you buy can quietly wipe out your ability to qualify.
Talk to your CPA before filing
Tell them you plan to buy a home. There is often a real choice between writing off everything possible and showing enough net income to qualify. Once the return is filed, that choice is gone for the year.
Talk to your lender at the same time
I can tell you the exact net income needed to support the payment you want. Your CPA can then file with that target in view. Doing this in the right order is worth more than any rate you will shop for.
The trade-off, stated plainly
Writing off an extra $30,000 might save you several thousand in taxes. It can also drop your qualifying income enough to cut your buying power by six figures. Neither answer is automatically right. You just need to make that decision on purpose, with both professionals in the room, instead of finding out in underwriting.
What else underwriting will look at
One year of returns does not mean one document. Expect to provide:
- A year-to-date profit and loss statement showing the business is still performing.
- Business bank statements, typically the last two to three months.
- Proof the business is active and in good standing, such as a current license or registration.
- Evidence the income is likely to continue, which is the standard underwriting is actually measuring against.
Underwriting is not trying to catch you out. It is answering one question: is this income stable enough to count on for the next thirty years? Five years of history plus a strong current year is a persuasive answer.
The bottom line
One year of tax returns is a real, guideline-supported option for self-employed buyers on a conventional loan. It generally requires five or more years of self-employment, a signed CPA letter, and a credit score above 710 to keep PMI from eating the benefit. The down payment can still be as low as 3%.
The part to remember: we qualify you on net income, not gross. If you are planning to buy, loop in your CPA and your lender before you file, not after. That one conversation, in that order, is often the difference between qualifying and waiting another year.
Self-employed and thinking about buying?
Let's look at your returns and your timeline together, before you file. I'll tell you the net income you need and whether the one-year path fits.