How many people in the United States are self employed? Make a guess? Finding it hard, right? Self-employment is a broad term. It can include people who run their own large firms to handymen with small shops. If you’re self-employed and can’t get a mortgage, try to apply for a bank statement loan. Since, you can’t guess how many people are self-employed, I’ll tell you. According to Statista, in spring 2017, there were 16.78 million people in the U.S who were self-employed. That’s a huge figure and many experts think even more people will turn to self-employment in the years to come. A major challenge that self-employed people face is getting approval for loans and mortgages because the traditional process of approval does not favor those who are self-employed.
Fortunately, there are some programs out there for helping self-employed people with the help of bank statement loans.
Why Self-Employed Borrowers Don’t Get Approved Easily
When approving a borrower for a loan, a mortgage lender verifies their income by checking recent pay stubs covering a period of 30 days in addition to W2 forms of the previous two years. Gross monthly income can easily be calculated because everything is laid out. But, that’s not the case with self-employed borrowers, and income documentation is always a problem.
For a regular worker who has a stable job and earns $200,000 a year, the bank can assume that each year he/she will make $200,000 or even more. With pay stubs, an employee can show proof of consistent income which gives more credence to mortgage lenders.
However, with self-employed borrowers, the case is completely different as they might make $250,000 in one year and in the next they might only make $150,000. Their fluctuating income makes a lender feel at risk.
What will happen if the income of the entrepreneur plummets?
You might be thinking you’ve made a mistake by joining the world of the self-employed. Not only is managing the business hard, but you’re also worried about borrowing money for purchasing a home.
Don’t fret, there’s one special program that can help; the bank statement loan program.
Bank Statement Loan Program
The bank statement loan program is a special type of mortgage program in which two years of income tax return, two years of W-2 and recent pay stubs are not required. Instead, the bank statements from the past 12-24 months can be used to establish proof of income.
If the income of the two years is different, then the income will be averaged for two years. This could either drag down your average monthly income or increase it.
Properties Eligible Under The Bank Statement Program
While the bank statement loan program is mostly used for purchasing a primary home, but you can use it for other purposes as well. For example:
- If you’re looking to buy a second home, you can do so by using a bank statement mortgage program.
- If you wish to invest in real estate, you can use the bank statement program to buy investment properties.
- Bank statement programs can fulfill your desire of living in condominiums.
- You can even buy a vacation home with the help of bank statement program.
Qualifications For The Bank Statement Program
To qualify for the bank statement program there are a few requirements.
- A minimum credit score of generally 620
- Minimum 20% down (10% down in some cases)
- Some programs require 24 months of bank statements..some only require 12 months
- 50% debt to income thresholds
- Some programs will let your CPA write an “expense factor” letter that will allow the lender to determine what of your deposits are gross and what deposits are net
- Profit & Loss Statements can be utilized for some programs
If you’re self-employed, you should be thankful to the bank statement program for increasing your chances of mortgage or loan approval. However, it’s critical that you are aware of all the requirements of the bank statement mortgage loan before you go to a mortgage lender. This will increase your chances of approval. Contact a knowledgeable professional for more information about bank statement mortgage program.
If you have been denied a home loan or have any questions about real estate or mortgage please contact the author, Matt Herbolich, MBA, JD, LLM by phone or text at 786.390.9499 or by email at mherbolich@usa-mortgage.com. Mr Herbolich works when you work, so feel free to contact him any time.