Credit Challenges Continue for Self-Employed Borrowers

Despite earning nearly twice as much income on average as other borrowers, self-employed Americans continue to experience more difficulty obtaining a loan quote than their counterparts, according to a study.

In a study of borrower profiles and lender behaviors, Zillow found that self-employed loan applicants receive only six loan quotes for every 10 received by non-self-employed borrowers. That's even worse than in June 2011, when the ratio was seven for every 10.

While self-employed borrowers tend to earn 81 percent more money annually—$145,000 per household on average compared to $80,000 for non-self-employed households—they're being held back by lower average credit scores, Zillow says.

"Low credit scores, coupled with a mountain of paperwork lenders must complete specifically for self-employed borrowers, make them unattractive," said Erin Lantz, VP of mortgages at Zillow. "So, despite self-employed borrowers with high incomes appearing on paper to be better situated to repay their loan, they're often overlooked by lenders."

According to the company's analysis, 47 percent of self-employed borrowers have self-reported FICO scores below 720, while 28 percent have scores below 680. By comparison, 23 percent of non-self-employed borrowers have scores below 720, and 14 percent have scores below 680.

The median U.S. credit score as of April 2014 was 692, according to myFICO.

Though their credit scores tend to be lower, self-employed loan applicants beat out their counterparts across most other categories. Besides earning a higher annual income, they also tend to put down more money, paying on average 15.3 percent for down payments on mortgage requests compared to 14.6 percent for the other group.

Self-employed borrowers are also more interested in higher-priced homes, the study found. The median property value for mortgage requests for self-employed borrowers on Zillow is $352,000 compared $315,000 for non-self-employed borrowers.