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 securing a home loan. Most conventional home loans require pay stubs and W-2s, which self-employed borrowers cannot provide.
There are, however, ways for self-employed workers to obtain 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 review the borrower’s bank statements for a set period to determine whether the borrower can demonstrate sufficient income to warrant loan approval. As with any loan, the lender wants to ensure the borrower can repay it once approved. You may qualify if you demonstrate a good track record of paying off debts and maintaining a steady income. There are usually specific minimum requirements, such as a credit score, loan amount, debt-to-income ratio, and a continuous self-employment period of 2 years. If you are using personal bank statements, you must own at least 25% of the company; if you are using company bank statements, you must own at least 50%.
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 earnings 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 888-661-19831 or click here for more information.
