Non-qualified mortgage (non-QM) loans
Buying Property as self-employed Person
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Overview
As a self-employed person, you work hard to build a business. You take pride in what you have achieved, and that your work ethic has put you in a position to be able to buy a home. So why should you be worried about being self-employed when submitting a mortgage application?
Buying a home in today’s competitive real estate market can be challenging period, that process can be even more of a challenge if you are self-employed. The part that can be the most difficult is documenting your income. Proving your cash flow as a business owner, contractor, or freelancer can require more paperwork than for W-2 employees.
Buying a home in today’s competitive real estate market can be challenging period, that process can be even more of a challenge if you are self-employed. The part that can be the most difficult is documenting your income. Proving your cash flow as a business owner, contractor, or freelancer can require more paperwork than for W-2 employees.
So what should you do?
You can start off by providing your lender with your tax returns, showing how much money you claimed. Although it is tempting to do so, lowering your taxable income by writing off expenditures could mean that you will not qualify for the home you would like. In fact, the lender will look at your debt-to-income ratio, which means if you have any credit card debt, auto loans, or student loans, the amount of your minimum monthly payments will be compared to your monthly income. If that ratio is too high, your dreams of owning a home will not become reality. How should your move forward? Thankfully here at LendingPlace we specialize in Self Employed Mortgage Loans. We have access to special loan programs specifically for self-employed home buyers. The loan programs do come with a higher APR than some of the traditional mortgage programs, however if you haven’t done your best at documenting your income, these programs could help.
Bank StaTEMENT ONLY LOAN
The first program to consider is a Bank Statement Only Loan. Bank Statement Only Mortgage Loans don’t require you to show your tax returns, W-2s, pay stubs, or employer verification forms. Instead, you can use your personal bank accounts, or personal and business bank accounts, to prove how much you make every month and year.
Here are some important Bank Statement Mortgage Loan details:
- Business Deposits verified by 3 or 12 or 24 months of Bank Statements
- LTV up 90% for Purchase and R/T AND Cash-Out Refinances.
- Minimum FICO Score 620
- No Business or Personal Tax Returns!
- Available for Primary, Second Homes or Investment Properties
- 30-Year Fixed and 5/7/10 ARM options
- Interest-Only payment options.
- Reserves: 6 to 12 Months of PITI
- Loan Amount Limits: $200,000 to $3,000,000
- Rates starting at 5.25%
If Bank Statements do not work for you, we can also do a Profit and Loss Statement loan. This program has the same credit score requirements as the Bank Statements Only Loan, but requires at least 20% down. Your P&L statement will need to be prepared by a licensed accountant in order to be considered.
WHAT IS P&L?
A P&L or Profit and Loss statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal year.
So basically instead of using tax returns, we allow the business owner to have their licensed tax preparer provide a 1-2 Year Profit and Loss (P&L) Statement as income, which often provides a more accurate picture of your income.
There are no prepayment penalties for owner occupied and second homes, so the loan can be refinanced if desired, as soon as the applicant qualifies for a traditional home loan. Many of our clients use this program to buy their dream home and decide to refinance it into a traditional loan once they and their tax advisers determine the optimal time. It allows the business owner to take control and buy a home on their terms.
This loan program is similar to our Bank Statement Program, but the documentation requirements are much easier than providing 12-24 months of bank statements.
So basically instead of using tax returns, we allow the business owner to have their licensed tax preparer provide a 1-2 Year Profit and Loss (P&L) Statement as income, which often provides a more accurate picture of your income.
There are no prepayment penalties for owner occupied and second homes, so the loan can be refinanced if desired, as soon as the applicant qualifies for a traditional home loan. Many of our clients use this program to buy their dream home and decide to refinance it into a traditional loan once they and their tax advisers determine the optimal time. It allows the business owner to take control and buy a home on their terms.
This loan program is similar to our Bank Statement Program, but the documentation requirements are much easier than providing 12-24 months of bank statements.
Here are some important Profit and Loss (P&L) details:
- LTV up 80% for Purchase and Rate & Term Refinance/ up to 75% for Cash-Out Refinances
- Minimum FICO 620
- P&L prepared by a licensed accountant required
- Available for primary and second homes
- 30 Year Fixed and 5/7/10 ARM options
- Interest Only payment options
- Reserves 6 to 12 months of PITI – Cash-Out funds can be used as reserves!
- Loan Amount Limits: $200,000 to $3,000,000
Lastly, we can help you with a No Income Verification Loan. The credit score requirement is 640 and the down payment must be at least 20% to be approved.
No Income Verification Loan
No-income verification mortgages, also known as stated-income mortgages, allow borrowers to qualify using non-standard income documentation. While most lenders ask for your tax returns, no-income verification mortgages instead use other factors such as available assets, home equity and overall cash flow. This makes it easier to get a home loan if you’re self-employed or rely on seasonal commissions.
Here are some important No Income Verification Mortgages details:
- LTV up 80% for Purchase and Rate & Term Refinance/ up to 75% for Cash-Out Refinances.
- Minimum FICO credit Score: 740+
- No income or employment Documentation Required, No VOE
- Just One Month bank statement for Proof of Funds
- Available for primary and second homes
- 30-Year Fixed and 5/7/10 ARM options
- Interest-Only payment options.
- Reserves: 3 to 18 Months of PITI (Based on borrower’s FICO) – Cash-Out funds can be used as reserves!
- Loan Amount Limits: $200,000 to $3,000,000
- Rates starting at 6.875%
The Process Isn’t Totally Different. Overall, the process of applying for and being approved for a mortgage as a self-employed worker requires a couple of extra steps, but it isn’t the end of the world. Before you apply, you should still make sure your credit score is in good shape, and that other debt is minimal. Overall, as long as you have kept track of your income and expenses in a somewhat easy way to verify, you should be in good shape.
If you are in need of a Self Employed Mortgage Loan, give us a call at 818-381-0500
Articles are brought to you by LendingPlace Mortgage Brokerage located in Los Angeles California. LendingPlace is Licensed in both California and Florida and can help with both Conventional and Non-Conventional Mortgage Loans. Information was obtained by a third party source and deemed reliable, but have not confirmed.