It is no secret that the self-employed have their share of challenges when it comes to getting a home loan. And why wouldn’t they? On one hand, their tax professionals spend hours maximizing their deductions and helping them “write off” every allowable expense and on the other hand, their mortgage loan advisor tells them they have to show more income in order to qualify.
But can these seemingly opposite or contrary objectives actually be complementary, interconnected and interdependent and come together to allow a business owner to get a great mortgage? Is there a yin and yang relationship somewhere in this puzzle?
Indeed, there may be a solution for some of these borrowers. On both the purchase and refinance side, we have a jumbo mortgage program that allows the self-employed to qualify with bank statements instead of tax return income. We’ll look at 12 months of business and personal bank statements but we won’t request pay stubs, W-2 forms or personal or business tax returns. Here are the key points:
Who is Eligible for a Bank Statement Mortgage?
This program is a match for the self-employed business owner with two-year history of operating the sole proprietorship, LLC, S-Corp or C-Corp. We prefer to see 100% ownership of the business but we can make some exceptions to this guideline. We do not allow any major derogatory events (bankruptcy, foreclosure, short sale, etc.) within the last five years. Realtors, independent contractors and other professionals who receive a 1099 are also ideal candidates for this bank statement loan.
How Does a Bank Statement Mortgage Work?
We’re next going to look at 12 months’ worth of business bank statements and we’re going to get a sense of the business deposits over that period of time. We’ll apply a 50% expense ratio to derive our qualifying income. So, for example, if the business shows $40K of monthly deposits on average, our business owner and borrower now has $20K per month of qualifying income. Simple as that, except we exclude any windfall deposits, transfers to and from accounts or anything other than legitimate business deposits.
What Else Do I Need to Know?
We will permit all occupancy types (primary, vacation and rentals) and we’ll allow loan-to-values (LTV) up to 75%. Interest-only payment options exist and our maximum debt-to-income (DTI) ratio is 47%, because this is a non-QM program. Simply, you have more flexibility under these guidelines than under the stricter qualifying parameters of a qualified mortgage (QM). Best of all, and worth repeating, we will not request your tax returns and we don’t need to see a profit and loss (P&L) statement for the business — the bank statements are our path to inner peace and harmony.
Bank statement qualification mortgages can open the door for the hard working business owner who has heretofore had little luck getting a hefty mortgage payment to fit into his skinny tax returns. If you’d like to know more about this program today, get your ticket at the station, get in touch and I’ll be happy to help.
Robert J. Spinosa
Vice President of Mortgage Lending
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709
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