I Earn a 6-Figure Income. Here's Why It Didn't Count When We Were Refinancing Our Mortgage

When my husband and I bought our home, we were able to lock in a fairly favorable mortgage rate. But when rates plunged in 2020, we decided to take advantage by refinancing our existing 30-year loan to a 15-year loan.

Doing so raised our monthly mortgage payment a bit. But we were thinking long-term in the course of that decision, and we decided we were willing to increase our monthly mortgage payments to save a boatload on interest in the long run.

When applying to refinance our mortgage, our lender required us to provide certain financial information, including recent tax returns and details of our income. But my income didn't end up counting toward our mortgage application, despite the fact that I had earned six figures the year before. Here's why.

When vetting your income is too much of a hassle

When you're a salaried employee, providing proof of income to your mortgage lender isn't all that difficult. You can generally get away with showing copies of recent pay stubs and a recent W-2 or tax return.

When you're self-employed, verifying your income becomes much harder. It's often not enough to just present a copy of a recent tax return. And even bank account statements showing money flowing in isn't enough.

Rather, if you're self-employed as a mortgage applicant, you'll generally need to show a history of uninterrupted self-employment income for at least two years, says Rocket Mortgage. On top of that, you may need to provide information that includes a list of current clients or contracts, a copy of business licenses you hold, and a letter from a professional organization that can attest to your membership.

Some of these things can be difficult to come by. I don't happen to be a member of a professional organization, for example. And even things like copies of contracts can be tricky.

That's why it made sense to just not count my income at all when we refinanced our mortgage. Our lender informed us it would make the process a lot less cumbersome. And since we were able to qualify for the loan amount we were looking for based on my husband's income alone, it made sense to just go that route.

Be mindful of applying for a mortgage if you're self-employed

It is possible to qualify for a mortgage when you work for yourself. But expect to have to jump through extra hoops if you're applying for a mortgage while self-employed. And don't be surprised if the process of closing on one takes longer.

One thing you may want to do is research requirements for self-employed applicants before you apply for a mortgage and have them ready to go. That way, you won't hold up the process if you find your dream home and want to close on a mortgage quickly.

While it was certainly frustrating to not have my income count toward our mortgage refinance, I didn't make a stink about it since we didn't need it. Had things been different, I would've had a hassle on my hands. I guess I'll chalk it up to one of the many downsides of being self-employed.