HARD TO QUALIFY BORROWERS
Self employed borrowers, business owners, startup owners, and entrepreneurs can be some of the hardest borrowers to qualify for a mortgage, although they may have high income and assets available for downpayment.Traditional mortgage guidelines qualify borrowers using net taxable income, which means that clients who have tax returns that show significant deductions and expenses may not be able to demonstrate sufficient income needed to qualify with traditional DTI (debt to income) limits.
There is a new breed of mortgage products that use different criteria to qualify self employed borrowers; by using 12-24 months of bank deposits to demonstrate income rather than net income after deductions, many self employed borrowers are able to qualify for long-term financing to purchase or refinance their properties. These loan types qualify using DTI (debt to income) ratios, so although the more liberal method of calculating income can help, clients with substantial monthly obligations may need alternative strategies to reach the loan amounts they prefer.
BANK STATEMENT PROGRAMS
12 or 24 months of bank statements are used to show deposit activity. All deposits are added, minus one-time (nonrecurring) type deposits, and an average monthly "income" is calculated.
- Personal Statements: 100% of deposits may be counted as income.
- Business Bank Statements: 50-80% of deposits may be counted as income, depending on business type. For instance, a retail business would likely qualify using just 50% of deposits, but a lower overhead business such as a consultant may be able to count up to 80% of deposits as "income".
Some lenders call these programs "stated income" loans, but they do meet the ATR "ability to repay" rules, due to the amount of documentation provided to qualify.
- Mixed Use Properties: Yes, we have options for mixed use (residential and commercial).
- Investment Property Purchase and Refinance: See our Real Estate investor page--these specialty loan products work extremely well for self employed borrowers and business owners; no tax returns, w2s, or personal income/liabilities are considered in qualification.
- Vesting in LLC or Holding Title in a Corporate Entity: Many of our products allow this for investment properties. A personal guaranty must be executed as part of the loan file.