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

On March 29^th, we honor small business owners across the country by celebrating National Mom and Pop Business Owners Day. Besides providing consumers with a wide variety of products and services, small businesses employ 77 million U.S. workers and create 65% of new jobs, according to the National Day Archives. And while they may make fewer sales, locally owned retailers earn three times as much as their chain competitors 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 the proper documentation for a conventional mortgage loan, such as a W-2, and can’t show sufficient income on their tax returns.

There are, however, ways for self-employed workers to obtain a mortgage loan. One way is through a bank statement loan. Instead of reviewing employment documentation or tax returns, lenders review the borrower's bank statements to determine whether the borrower can demonstrate sufficient income to qualify 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, the percentage of monthly income that goes toward paying any debts they may have, including a mortgage. Other qualifications for a bank statement loan may include a  maximum debt-to-income ratio, a  minimum credit score, and at least a  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  minimum credit score, and a down payment of at least .

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 888-661-1983.