Mortgages for self-employed borrowers are a bit different than your traditional conforming and conventional loans. The reason they are different is because most self-employed borrowers do not receive a regular paycheck and W2. Other factors that set these loans apart are borrowers who have incomes that fluctuate throughout the year and hard to document income.
This is where we will get a little creative to help you qualify. When I say creative, we will allow certain qualifying factors that you won’t see on traditional mortgages such as alternative sources of income documentation like bank statements and business income to validate your income.In order to qualify for a loan, you will need to prove that you can afford the mortgage payments over the long haul.
Here are some examples of how you can prove your financial wherewithal:
* You have a stable and future income.
* There is a demand for your products or services
* Two years personal tax returns showing income growth.
* Two years business tax returns. If your business is less than two years, proof that you have work experience or business to your current company.
* You have good credit.
* You can prove the source of your down payment.
These are just some examples and are not hard and fast rules. Below I will go over more detailed guidelines on traditional loans and our bank statement loans.
Traditional 30 Year Fixed Mortgage Programs
Fannie Mae allows self-employed borrowers with a history of paying themselves from the business bank accounts to qualify as long as they can prove they have legal access to the income and that the business income is able to support direct withdrawals. You can prove this easily with business bank statements and a letter of incorporation or K-1 filing. Any individual who has a 25% or greater ownership interest in a business is considered to be self-employed.
If you have only been in business for less than two years, Fannie Mae will allow one year of returns proving that you have 12 months of business income and a cash flow analysis of the business income shows growth and stability. You can also use business assets for your down payments, provided that you have adequate business cash flow.
Bank Statement Loans
With a 12-month bank statement loan, we will average your income based on average deposits over the last 12 months. If you are using income from a business bank account, you must be a majority owner of the business and your income will be calculated using deposits net of all withdrawals and debits.
This average will then take into account any recurring monthly expenses, and subtract them in order to arrive at an average monthly income. This monthly income will then be used to qualify you for a new loan.
Our bank statement loans will finance as much as $3,500,000 of a purchase and/or refinance. Please keep in mind that we do have a minimum FICO, cash reserves, and other requirements that may apply.
Extra Tips and Advice
You will want to make sure that you track all your income and expenses meticulously and that you can document any large deposits you make into your personal and business bank accounts. Gather up all your bank statements, tax returns, and business incorporation papers so you can make sure you got all your ducks in a row and to make sure you will have everything you need to apply for the mortgage.
If you have any questions or you would like to see if you qualify for a new mortgage, please either give me a call at 1-800-779-4547 or email to Eric.Sandstrom@BancHomeLoans.com.