Are you self-employed and looking to qualify for a mortgage loan but are not sure where to start? You may have already spoken to a mortgage representative at your local financial institution only to find out that they are unable to help you. If this sounds familiar, there may be some lending options available for you.
There are plenty of loan programs designed to provide mortgage financing specifically for self-employed borrowers. Your best bet is to seek out a loan officer who works at an independent mortgage bank or independent mortgage brokerage.
A strategy to make any real estate purchase easy is to identify a mortgage loan originator who is well-versed in lending products for self-employed borrowers. The next step is to complete a loan application and provide them with all of your income documentation. While tax returns are the main source of determining qualifying income, an alternative loan program for self-employed individuals is what is known as a Bank Statement mortgage loan.
Bank Statement loan programs are based on the gross deposits/revenue the business receives over the course of a year. The easiest way to determine if you can qualify for this program is if the business entity has its own bank account. Once the gross deposits are determined, they are then haircutted based on the number of employees and which industry the business operates within to determine the qualifying income.
Another common alternative loan for self-employed individuals is what is known as a ‘Profit & Loss Statements Loan’. This loan is exactly what it sounds like as the qualifying income is determined by looking at an “audited” Profit and Loss statement for the business. Typically, for a Profit & Loss statement to be considered viable it must be signed off on by the CPA or Tax Preparer involved with the tax preparation of those tax returns.
Another potential loan for self-employed individuals, while a bit less common, is the ‘1099 Only Loan’. This loan is a good option for individuals who work as independent contractors in a specific field (i.e. Schedule C). You can think of a 1099 as a receipt or a pay stub that is issued to an independent contractor. Depending on the type of work you do you might receive a dozen 1099’s in a given year or a single form. To determine the qualifying income for this program all the 1099’s received over the past two years are averaged out.
The workforce is shifting more towards a gig economy and self-employment is more common than ever before. While it might be more challenging for a self-employed individual to get a mortgage loan, it is not impossible.
If you are working with a knowledgeable mortgage loan originator who is well-versed in a variety of loan programs, you will likely be able to achieve your goal of getting approved for a mortgage.