A self-employed individual has several sources of income, and these income sources are not necessarily equal.
For example, if you have six clients that pay you a total of $6,500 each month, there's a high chance that all these clients don't pay you equally. Also, some clients might only stay with you for a limited time.
For instance, two clients might only be working with you for two months and then drop off, which makes a dent in your income and brings it down to $5,200 for a month. In addition, a lender will seek your bank statement and income tax return over the past years before loaning you a mortgage amount.
A fluctuating income is usually not good news when looking out for mortgage loans, and you'll have to provide more paperwork to lenders to gain their trust. So, it's about trust and proving that you are an ideal mortgage candidate.
W-2 employees have significantly less difficulty because they can submit their W-2 tax returns for a loan. And a W-2 employee's income is much more stable than a self-employed individual's.
As a self-employed individual, you can have more significant business deductions
to lower your taxable income, but it shows less income on your return which is not favorable for getting a mortgage loan.