Credit is easier to access today. This includes the self-employed mortgage. There is a belief that if you’re self-employed, you’re out of luck when it comes to buying a home. In fact, there are a number of alternatives specifically for the self-employed.
The Normal Mortgage
A normal loan considers the self-employed borrower as any other borrower initially. For example, 2 years of self-employment along with all supporting documentation gets things started. These are things like 1099s, Tax Returns, bank statements, etc. Ideally, the borrower is showing year-over-year increasing income. A Profit and Loss Statement for the current year is also required. Depending the lender, the borrower is asked for other specific documentation. The upside here is the borrower qualifies for a market-rate loan.
The Bank Statement(s) Mortgage
For borrowers with lots of cash flow and tax returns that fluctuate, there are loans based on cash flow. Bank statements show your cash flow. Different lenders ask for different lengths of time. The last 3 months, last 6 months, etc. There are even single (1) month bank statement loans. The shorter the period, the more risk the lender is assuming. This increased risk leads to a higher interest rate for the borrower.
Other Factors
Other things lenders consider in your favor: savings, credit score and recent payments on other debt. Are there any late payments? Any under-payments? Savings of 3 to 9 months’ of expenses are required. These can be in the form of a 401(k) account, investment portfolio, Certificate of Deposit or other savings. Also, if you’re writing off any non-cash expenses (depreciation of an asset(s)), they are added back in to earnings. You may find you are making more than you thought.
Hard Money Loans
Private money, known as a hard money loan, is an other alternative. Here the loan is based on two things. 1) the home’s value. 2) the borrower’s ability to make the monthly payments. A key difference is significant down payment. Interest rates are higher. Credit score is not usually a factor.
As you can see, a self-employed mortgage loan is not an impossibility. Be more flexible in your approach and expectations as it is easier to qualify than you think. If you need help with a self-employed mortgage, reach out to me at 760 622 5087 or [email protected]
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