Can Self-Employed Buyers Get Down Payment Assistance in Tennessee?

Can self-employed people get down payment assistance in Tennessee?

Yes, in most cases. Being self-employed does not by itself rule you out of THDA's loans or most local programs. What matters is whether your income can be documented and counted, and whether your household income fits your county's limit. Lenders call you self-employed if you own 25% or more of a business, or if you file a Schedule C as a sole proprietor. That includes:

• 1099 contractors: travel and per-diem nurses, contract therapists, IT and trades contractors.
• Owners of a small LLC or S corporation, such as a lawn care company, a salon chair rental or a cleaning business.
• Part-time real estate agents, tutors, coaches, photographers and others with side businesses.
• Rideshare and delivery drivers. They have their own page: buying a home as a gig worker in Tennessee.

Homeownership for Heroes is the one exception. It is tied to a job, as the next section explains.

Which Tennessee programs can a self-employed buyer use?

Homeownership for Heroes requires you to be currently employed in Tennessee as a full-time K-12 teacher or principal, a law enforcement officer, a firefighter, an EMT or paramedic, or a public-safety dispatcher, with a license or certification. Self-employment in another field does not make you eligible. Whether a contract EMT or a teacher paid on a 1099 counts as "employed" in the role is not spelled out, so a participating lender confirms. Military members and veterans qualify by service, not job, so a self-employed veteran can use Heroes. See who qualifies as military.

Programs open to any occupation:

The Memphis programs for police, firefighters and Memphis-Shelby County Schools staff are job-based, like Heroes. The full list is on the Tennessee down payment assistance directory.

How long do you need to be self-employed?

Plan on two years. THDA's Heroes and Great Choice loans are FHA, VA or USDA, plus a conventional Freddie Mac option. The verified rules for FHA and Freddie Mac allow shorter histories in narrow cases:

• FHA: 1 to 2 years of self-employment can work if you worked at least 2 years before that in the same or a related line of work.
• Freddie Mac: your self-employment plus a prior job in the same or similar field must add up to 2 years, and your tax returns must show at least one year of self-employment income.

A nurse who left a hospital staff job to take 1099 travel contracts 15 months ago is the typical case that can fit. Someone who started an unrelated business last year usually cannot yet. VA and USDA self-employment rules were not verified for this page, so your lender confirms those.

What documents and income math do lenders use?

Expect to provide:

• Two years of complete, signed personal tax returns with all schedules.
• Business returns (1120S, 1065, K-1s) if you own a corporation or partnership. FHA can waive them in some cases where income is rising.
• A year-to-date profit and loss statement if more than a quarter has passed since your last tax year ended (FHA).
• Signed IRS forms (such as the 4506-C) so the lender can pull transcripts.
• For Freddie Mac loans, third-party proof the business exists, dated within 120 days of closing.

Lenders start from net income after expenses, not gross. They add back non-cash deductions such as depreciation, depletion, amortization and, on Schedule C, business use of your home. FHA then uses the lower of your 2-year average or your most recent year.

Example only: a contractor's Schedule C shows $52,000 net in year one and $60,000 in year two, with $3,000 of depreciation each year. Adjusted income is $55,000 and $63,000. The 2-year average is $59,000, which is lower than $63,000, so FHA counts $59,000, or about $4,917 a month. At THDA's 45% debt-to-income maximum, total monthly debts including the new house payment could be about $2,212.

Falling income is the main red flag. Under FHA, a drop of more than 20% sends the file to manual underwriting, where it needs an explanation and at least 12 months of stable or rising income. Try your own numbers in the affordability calculator.

What if one spouse is a W-2 teacher and the other is self-employed?

This is common, and it can work well. The teacher, deputy or firefighter is the one who makes the household eligible for Homeownership for Heroes. The self-employed spouse does not need a Heroes job.

Two rules apply to both of you. THDA's income limit is a household limit, so the business income counts toward it. Use the Tennessee income limits by county to check. In Davidson County the limit for 3 or more people is $162,540, while in Shelby County it is $118,214. Both spouses must also meet the first-time buyer rule unless you buy in a targeted area.

If you need the spouse's business income to qualify for the payment, that spouse goes through every self-employed rule above. If the W-2 income qualifies alone, the loan can be simpler. Exactly which income THDA counts toward the limit, a THDA-approved lender confirms.

Bank-statement loans vs. state down payment programs

Bank-statement loans qualify you from deposits instead of tax returns, which helps owners who write off a lot. Federal ability-to-repay rules allow bank records as income proof, but these are usually non-QM loans priced above agency loans.

The trade-off: THDA's assistance sits behind its own FHA, VA, USDA or Freddie Mac first mortgage. A bank-statement loan generally cannot be paired with THDA's down payment help or with most local programs, which also expect an agency loan. If your tax returns show too little income, you may get more from a year of lower write-offs and a THDA loan than from a non-QM loan with no assistance. Talk to a CPA before changing how you file.

Steps for self-employed buyers in Tennessee

1. Pull your last two tax returns and note net income, plus depreciation and home-office deductions.
2. Check your county's limit on the income limits page, counting every household earner.
3. Check your credit is at least 640 (see THDA's 640 rule).
4. Prepare a year-to-date P&L and keep business and personal accounts separate.
5. Estimate cash to close with this cash-to-close guide.
6. Check your eligibility and ask for a THDA-approved lender who underwrites self-employed files.

Common questions