By Matt Allen
Vice President, Portfolio Lending (NMLS #415037)

How to Get a Home Loan if You Are a Small Business Owner

Mar 23, 2023

  • 1099 Mortgage Loan
  • Non-QM Loans
  • Bank Statement Loan

On March 29th, we honor small business owners throughout the country each year by celebrating National Mom and Pop Business Owners Day. Besides providing consumers with a wide variety of products and services, small business owners retain 77 million U.S. employees and create 65% of new jobs, according to National Day Archives. And while they may make fewer sales, locally-owned retailers earn three times what their chain competitors make for every dollar of sales.

However, while the earnings of many small business owners may be robust, their ability to purchase a home can be more difficult than those working in the corporate world. Self-employed workers don’t have proper documentation for a conventional mortgage loan like a W-2 and can’t show enough income on their tax returns.

There are ways, however, for self-employed workers to get a mortgage loan. One way is through a bank statement loan. Instead of looking at employment documentation or tax returns, lenders look at the borrower's bank statements to determine if they can produce sufficient income to warrant approval for a mortgage loan. To qualify, a borrower should have at least two years of self-employed income and business experience. Once a lender has determined income, they will decide the maximum loan amount allowed. This is based on the borrower’s debt-to-income ratio, a percentage of the monthly income that goes towards paying any debt they may have, including a mortgage. Other qualifications for a bank statement loan may include a 45% maximum debt-to-income ratio, a 680 minimum credit score, and at least a 10% down payment with mortgage insurance.

Another home loan available for small business owners is a 1099 mortgage loan. This option suits self-employed, freelance, and contract workers who recently switched from W-2 to 1099. Some qualifications for a 1099 mortgage loan include the last six months of 1099 income, documentation of year-to-date income, a 680 minimum credit score, and a down payment of at least 15% with mortgage insurance approval.

If you’re a small business owner and want to explore these options to secure a home loan, talk to the experts at NASB at 855-921-4921.