For self-employed borrowers it can sometimes be difficult to qualify for a mortgage. They typically don’t have the traditional income documents like pay stubs and W2s. Self-employed wage earners can write off business expenses from their gross income, which allows them to pay less in income taxes, but they have the means to buy a home that is more than what they would be traditionally qualified for.Verify your mortgage eligibility (Feb 23rd, 2024)
One loan program for self-employed wage earners is a bank statement loan. Income tax returns are not required, and qualified income is calculated by averaging the past 12 months of bank statement deposits. Borrowers have the option to use personal and/or business bank statements.
Total deposits made in the last 12 months = $100,000Verify your mortgage eligibility (Feb 23rd, 2024)
Divide by 12 months = $8,333.33 estimated qualified monthly income
Keep in mind that some lenders may have additional guidelines to qualify for bank statements loans. Some may require…
3 established credit tradelinesVerify your mortgage eligibility (Feb 23rd, 2024)
Verification of rent or past housing payment history
Strict debt to income ratios
A higher down payment is required (10% to 30%) – see the example belowVerify your mortgage eligibility (Feb 23rd, 2024)
24 months of bank statements
Not all deposits will count towards qualified income and lenders will also apply an expense ratio. Underwriters will exclude credit returns, account transfers, and credit card advances. Borrowers can only use 12 months of bank statements from one bank. Also, the down payment required may be dependent on the borrowers’ credit scores.
For example:Verify your mortgage eligibility (Feb 23rd, 2024)
620 FICO may require a 20% down
720 FICO may require a 10% down
If you are a self-employed business owner and have been in business for at least two years, you should consider getting pre-approved for a bank statement loan program. This option is available for primary, second/vacation homes, and even investment properties.