Home Loans For Self-Employed Borrowers

Many self-employed workers earn a good living, but without a regular paycheck to depend on, these workers might have a harder time proving their income than those who receive a W-2. This makes it more difficult to obtain a mortgage, but buying a home with a mortgage is possible when you’re self-employed.

The bank statement mortgage program is the perfect option for self-employed borrowers who do not have the tax documents to prove their ability to pay. You can buy or refinance a home without having to provide tax returns and extensive documentation. We can offer loans up to 90% LTV with no mortgage insurance. Whether you are purchasing your primary residence, second home or an investment property we have a loan for you.

How To Get A Home Mortgage When Self-Employed

Self Employed Loans for Mechanic

Many people who are self-employed generally earn decent living and are fairly well off. The problem with being self-employed is the fact that you aren’t earning a paycheck that can be used when buying a home. When buying a home, it is typically a requirement to be able to show that you are earning a consistent income that is verifiable. Lenders will not just be willing to believe you just from your word alone. They will require specific documents as well as information showing that you are able to make your payments consistently and on time.

Requirements

A common question asked when faced with the situation of getting home loan/mortgage when being a self-employed borrower or independent contractor, is how do I do it?

Lenders are going to question you about the status of your company and question its location and financial strength as well as your income and whether or not it is consistent enough. A W-2 employee usually makes a consistent income each year as well as earns a regular paycheck, this is why there is a lot less hassle when it comes to obtaining a mortgage or home loan though this type of work. If you are currently one of the over 15 million currently self-employed Americans then there is hope for you when looking towards buying a home.

The process for getting a home loan is the same as if you were a W-2 employee.

  • Your capacity to repay the loan will be checked and this can be done through your DTI (Debt to Income) ratio. If you are someone who is self-employed then your DTI will be based upon your last two years of tax returns. The ability for you to repay is also influenced by your reserves, this includes any assets or cash savings you have in your account.
  • Your credit history will also be checked. This is mandatory whether or not you are a W-2 employee or a self-employed worker. You are required by the majority of lenders to have a minimum of a 620 credit score although some lenders will require a minimum of 640. This number will give the lenders an idea of your ability to pay off your debts.
  • The value of the home you are buying will let lenders know of any potential risk there may be when lending to you. They will make sure that the price of the desired home is in line with the amount that you are borrowing. This will keep them stress free knowing that you will be making the payments on time and consistently. 
The only difference between a W-2 worker and a self-employed home buyer is the ability to verify income. For the average W-2 worker this is a simple task, only a months worth of paystubs showing that you have a consistent income is sometimes all that is needed. Whereas for the self-employed individual, the situation is a bit more challenging. Lenders will look at the bottom line for your business to consider your profit margin. You will need at least two years worth of your tax returns as well as signing Form 4506-T which is a document that allows the lenders to see all of your data for themselves.
Self Employed Man
United States Marine Officer

For a VA home loan, there are a few extra steps that need to be taken. The lenders will take into account your service and discipline. Putting together all of the relevant documents required for you to obtain a loan is something that you should be able to do especially if you are a self-employed business owner who is able to keep your pockets full.

If your business is family owned you may only need a years worth of tax returns. You will also potentially be required to have a third party co-signer if the borrower is self-employed or owns at least 25% of the business.

The IRS will require from you all of the proper documents and forms that you need in order to prove that the income you make is consistent and sustainable. Many lenders are not just willing to give out a loan to someone who is not financially stable enough to pay of the loan/ mortgage. This is also true for the majority of financial institutions.

Remember, if you are a self-employed worker who has your own business or is working as an independent contractor and are thinking about buying a home then you are going to need to have at least two years worth of tax returns to show that you have been making a sustainable income that is consistent and that you can use to pay off a potential home loan/ mortgage.