Conventional Loans

• Conventional loans, those provided by Fannie Mae and Freddie Mac, require minimum down payments of 5 percent and require mortgage insurance anytime less than a 20 percent down payment is provided. Self-employed borrowers apply for private mortgage insurance through their lenders. The lender ensures the loan meets all of the private mortgage insurance company guidelines or forwards the loan application to the private mortgage insurance provider for approval. Self-employed borrowers should expect to provide the most recent two-year's personal and business tax returns for review.
  
  

FHA

• As of 2011, FHA allows homeowners purchasing a home to provide a down payment as small as 3.5 percent. FHA requires two types of mortgage insurance. First the buyer must provide an Up Front Mortgage Insurance Premium (UFMIP) at the close of the loan. The borrower may either pay cash for the UFMIP, finance the UFMIP or ask the seller to pay for it. Additionally, FHA requires monthly mortgage insurance premiums. Self-employed borrowers who qualify for FHA loans automatically qualify for the mortgage insurance required. Usually FHA requires the self-employed borrower to provide at least two-year's personal and business tax returns. Occasionally FHA may only require one-year of personal and business tax returns.
  
  

VA

• Eligible veterans qualify for a home loan guarantee from the Department of Veterans Affairs (VA). VA requires veterans pay a funding fee at closing. Just like mortgage insurance, the VA funding fee acts just like mortgage insurance protecting lenders against losses in the event the veteran defaults on the mortgage. Self-employed veterans usually provide two-year's personal and business tax returns when qualifying for a VA loan.
  
  

Tax Deduction

• As of the 2010 tax year, the IRS allows eligible homeowners to deduct mortgage insurance from their taxes. This deduction includes mortgage insurance from conventional loans, FHA loans and the VA funding fee. This deduction began in the mid-2000s and was extended by Congress through the 2010 tax year. To qualify, the self-employed homeowner must have an adjusted gross income of $100,000 or less and have lived in the home as a primary residence. Contact a CPA or tax professional to see if you qualify for this deduction.