Quick overview

Self-employed seniors can qualify for a Home Equity Conversion Mortgage (HECM), but the underwriting centers on documented, stable cash flow rather than W-2 wages. HUD administers the HECM program and requires counseling and a lender financial assessment before closing (see HUD guidance: https://www.hud.gov/program_offices/housing/sfh/hecm). The Consumer Financial Protection Bureau also explains common borrower protections and loan basics (https://www.consumerfinance.gov/ask-cfpb/what-is-a-hecm-reverse-mortgage-en-1998/).

Eligibility basics

  • Age: 62 or older.
  • Primary residence: The home must be the borrower’s principal residence.
  • Counseling: Completion of FHA-approved HECM counseling is required.
  • Financial assessment: Lenders review income, credit, monthly obligations, and ability to pay ongoing property charges (taxes, insurance, HOA fees).

For a detailed primer on the HECM product, see our page: What is a Home Equity Conversion Mortgage (HECM)?.

What lenders expect from self-employed applicants

Lenders use the same HECM rules for everyone, but self-employed applicants must show consistent, sustainable income. Common documents lenders request:

  • Federal tax returns (individual and/or business) for the past two years, including Schedule C, K-1s, or corporate returns where applicable.
  • Year-to-date profit-and-loss (P&L) statements covering the most recent 12 months.
  • Business bank statements (often 12 months) and personal bank statements to show cash flow.
  • Evidence of business viability (invoices, contracts, client lists) for seasonal or contract-based work.
  • Proof of payment for property taxes, hazard insurance, and HOA dues.

Tip: If taxes show large non-cash deductions (owner draws, depreciation), provide reconciliations and an accountant’s letter to clarify true cash flow.

Financial assessment specifics

Since 2014 HUD requires lenders to perform a financial assessment to determine whether borrowers can meet ongoing property obligations. For self-employed borrowers, underwriters typically:

  • Average income across 1–3 years to normalize volatility.
  • Exclude non-recurring gains and one-time receipts.
  • Confirm reserves or other liquid assets that can cover taxes, insurance, and home maintenance if income dips.

In my practice, lenders often want to see either a stable 2-year income trend or adequate reserves (6–12 months of property charges) when income fluctuates.

Documentation checklist (practical)

  • 2 years of federal tax returns (business and personal).
  • 12 months profit-and-loss statement (preferably signed by an accountant).
  • 12 months business bank statements and recent personal bank statements.
  • Business license, contracts, or client rosters for verification.
  • Proof of current mortgage payoff (if refinancing to a HECM) and homeowner insurance declaration page.

Real-world example

A 64-year-old freelance designer with 3 years of growing revenue qualified after providing two years of tax returns, a 12-month P&L showing steady net income, and three months of bank reserves. The lender averaged income across both tax years and required a small reserve to cover the next year’s property charges.

Common mistakes to avoid

  • Using single-year income spikes to prove eligibility without showing trend lines.
  • Failing to reconcile owner draws or business distributions with taxable income.
  • Missing the FHA counseling step, which will halt loan progress.

For guidance on counseling requirements and what to expect, see: Reverse Mortgage Counseling Requirement.

How to prepare (recommended next steps)

  1. Gather two years of tax returns and 12 months of P&L and bank statements.
  2. Meet with a HUD-approved HECM counselor early to identify issues (required before closing).
  3. Talk with lenders experienced with self-employed applicants—ask how they treat owner draws, depreciation, and reserves.
  4. Consider getting an accountant’s letter that explains year-to-year variances.

Uses, limits, and repayment

A HECM lets qualified borrowers access home equity as a lump sum, line of credit, monthly payments, or combinations. The loan becomes due when the last borrower no longer occupies the home as a principal residence (sale, permanent move, or death). HUD and CFPB explain borrower protections and loan mechanics (see HUD: https://www.hud.gov/program_offices/housing/sfh/hecm; CFPB: https://www.consumerfinance.gov/ask-cfpb/what-is-a-hecm-reverse-mortgage-en-1998/).

Professional perspective

In my 15+ years advising older homeowners, self-employed borrowers that prepare full, reconciled documentation and show reserves move through underwriting faster and with fewer requests for additional materials. Lenders respond well to clear explanations for income volatility.

Disclaimer

This entry is educational and not personalized financial or legal advice. Rules and lender practices can change—consult a HUD-approved HECM counselor and a qualified lender or advisor for advice tailored to your situation.

Sources

Last reviewed: 2025. All information provided for educational purposes.