How this is calculated
- Qualifying income. Underwriters don't use your gross revenue — they use
net income from your last two tax returns, plus add-backs (paper deductions like
depreciation that didn't actually cost you cash):
monthly income = (year 1 + year 2 + 2 × add-backs) ÷ 24. If your most recent year is lower, we apply the declining-income rule most lenders follow (see Fannie Mae Selling Guide B3-3.2 on self-employment income) and use only the lower year:monthly income = (year 1 + add-backs) ÷ 12. The badge above tells you which rule fired. - Your housing budget. Two caps, and the tighter one wins:
the front-end limit
housing ≤ 28% × incomeand the back-end limithousing + other debts ≤ 36% × income(both adjustable under "advanced" — many conventional approvals stretch to ~45% back-end). - Max price. We solve for the largest price where principal & interest
on
(price − down payment)at your rate and term, plus property tax (rate × price ÷ 12), insurance, HOA — and PMI when the down payment is under 20% — still fits inside that budget. P&I uses the standard amortization formulapayment = L·i ÷ (1 − (1+i)−n). When adding PMI would push the price over the budget but dropping it would leave LTV under 80%, the answer pins at exactly 80% LTV (down payment × 5) — the calculator handles that edge honestly instead of flickering between the two.
What this doesn't model: lender overlays, credit-score pricing, jumbo limits, income trends inside a year, K-1/S-corp specifics, or bank-statement programs. It's a realistic first estimate of the number a lender will start from — not an approval.
Frequently asked questions
How do lenders calculate self-employed income for a mortgage?
Most lenders average your net (after-expense) self-employment income from your last two federal tax returns, then divide by 24 to get qualifying monthly income. If your most recent year is lower than the prior year, many underwriters use only the lower, most recent year instead of the average — the declining-income rule. This calculator applies both rules automatically.
What are add-backs on a self-employed mortgage application?
Add-backs are paper expenses an underwriter adds back to your net profit because they didn't actually leave your bank account — most commonly depreciation, depletion, amortization, one-time non-recurring expenses, and the business-use-of-home deduction. They raise your qualifying income above the bottom-line number on your Schedule C.
What debt-to-income (DTI) ratio do I need for a mortgage?
The classic guideline is 28/36: housing costs up to 28% of gross monthly income (front-end) and all debts including housing up to 36% (back-end). Many programs stretch further — conventional loans can approve up to about 45–50% back-end with strong compensating factors. This calculator lets you set both limits.
Can I get a mortgage with only one year of self-employment?
Usually lenders want a 2-year self-employment history. Some allow one year if you have prior W-2 experience in the same field. If tax returns understate your income, bank-statement loan programs qualify you on 12–24 months of deposits instead — at a higher rate and larger down payment.
Does this calculator store or send my financial data?
No. Everything runs in your browser; nothing you type is sent to a server. The "copy shareable link" button encodes your inputs into the link itself, so only people you share that link with can see them.
This calculator is an educational estimate, not financial advice, not a loan offer, and not a prequalification. Lender rules vary; verify your numbers with a licensed loan officer. No liability is accepted for decisions made from these results.