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

Two Ways to Get a Home Loan If You Are Self-Employed

Jun 22, 2022

  • Mortgages
  • 1099 Mortgage Loan
  • Non-QM Loans
  • Mortgage Programs
  • Portfolio Loans
  • Bank Statement Loan
  • Non-conforming Loans
  • Home Loans

Being your own boss certainly has advantages, from setting your hours to doing what you love with the potential to make more money. But it’s not without its difficulties. One of those challenges is trying to get a home loan. Most conventional home loans require pay stubs and W-2s, which self-employed borrowers cannot provide.

There are ways, however, for self-employed workers to get mortgage loans. One solution that has become a popular choice in recent years offered by some lending institutions is a bank statement loan.  In this program, lenders look at the borrower’s bank statements over a certain period to determine if they can produce enough income to warrant a loan approval.  Like any loan, the lender wants to ensure that the borrower can repay the loan once approved. You may qualify as long as you can show you have a good track record of paying off debts and have maintained a steady income. There are usually specific minimum requirements, such as credit score, loan amount, debt-to-income ratio, and a continuous self-employment time frame of two years.  If you are using personal bank statements, you have to have at least 25% ownership of the company, and if you are using company bank statements, you will need to own at least 50% of the company.

In addition to bank statements, lenders may require other documents, including:

  • Business License
  • Balance sheet
  • Year-to-date profit and loss statement
  • Rent or mortgage payment canceled checks
  • Additional income
  • Earnings statement

Another home loan option available for self-employed workers is a 1099 mortgage loan. Instead of using tax documents to qualify, borrowers can use their 1099 earning statements to show work income. Qualifications for a 1099 mortgage loan include:

  • The last six months of 1099 income, less if 1099, is from the most recent employer.
  • Documentation of year-to-date income
  • 680 minimum credit score
  • Minimum 15% down with mortgage insurance approval

As with any home loan preparation, you want to put yourself in the best position to be approved for a bank statement loan or 1099 mortgage loan. Some things you should do before applying include:

  • Pay down as much debt as possible to improve your credit score
  • Lower your debt-to-income ratio to 43% or less
  • Save for as much of a down payment as possible – at least 15%
  • Maintain clean, easy-to-follow business records
  • Work with a lender who has experience with non-QM mortgage loans

To find out if you qualify for a bank statement loan or 1099 mortgage loan, contact the experts at NASB at 855-921-4921 or click here for more information.