Bank Statement Mortgage Loans For Self Employed Borrowers

This BLOG On Bank Statement Mortgage Loans For Self Employed Borrowers Was Updated On May 13, 2017

When stated income mortgage loans were popular before the real estate and credit crash of 2008, self employed folks did not have a problem with financing.
  • As long as they had 20% down payment and just stated their incomes,  mortgage applicants were guaranteed mortgage loans.
  • Qualifying for mortgage loans for self employed borrowers were extremely difficult until recently.
  • Bank Statement Mortgage Loans for self employed borrowers, especially those individuals who are taking advantage of writing off as much business expenses found it next to impossible to qualify for a home loan.
  • With the introduction of NON-QM Loans and Bank Statement Mortgage Loans For Self Employed Borrowers, home buyers who are self-employed can qualify for  home loans.

Issues Faced With Self Employed Home Buyers

Home buyers who are self employed always had the most difficult time in obtaining mortgage loans.  Self employment comes with many benefits and being self employed is the American dream.
Having your own business has many advantages such as:
  • Being your own boss
  • Working flexible hours
  • Unlimited income potential
  • Writing off expenses on income taxes as well as depreciating assets, equipment, and properties. 
  • However, when it comes to getting a mortgage loans for self employed borrowers, these borrowers go through many obstacles and stress due to being self employed.
  • A large percentage of self employed people have been hurt by the Great Recession of 2008 and took thousands of dollars in losses. 
  • While millions of self employed people and businesses went bankrupt or closed their door, other fortunate self employed people and businesses barely survived, some taking losses year after year. 
  • For those that took major losses but survived the Great Recession of 2008, they really do not show too much income on their corporate and personal income tax returns.

Income Calculation Of Self-Employed Borrowers

When self employed people apply for mortgage loans for self employed individuals either to purchase a new home or to refinance their existing home, they run into major hurdles because the only way they prove their income is via income tax returns.  Mortgage loans underwriters will take the average of two years income tax returns as their average income for calculating the debt to income ratio.

Here is how mortgage underwriters calculate income from tax returns:

  • If self employed borrower had same or increasing adjusted gross income for past two years, underwriter will average the two years tax returns and the monthly gross income will be the average of the 24 months
  • If self employed borrower had declining income on the most recent tax returns, then the income from the two years of tax returns will not be averaged and the most recent year reduced income from the tax return will be used.
  • If  mortgage loans borrower showed a loss of $100,000 in 2008, and a profit of $120,000 for 2009, the income will be $20,000 to qualify for the mortgage.
  • One of the many advantages of being a self employed person is that they can write off many things like gas, food, entertainment, clothing, vehicle mileage, among other things to offset their income tax liabilities and not pay as much income taxes. 
  • This is great because you get to keep more money in your pockets but it is damaging when it comes to providing proof of sufficient income when it comes time to get a mortgage loans approval.
  • Many times we can add back depreciation to income if they own other real estate as well as other write offs. 
  • Sometimes I can structure a mortgage loan for a self employed client by adding a co-borrower or to the mortgage loan application. 
  • If the self employed borrower has bad credit, then I can probably just put the self employed person’s spouse on the loan and add the self employed person to the title. 
  • There are many creative ways I can structure a self employed person to obtain a mortgage loan.

Who Can Benefit From Bank Statement Mortgage Loans?

Self employed borrowers who do not have a steady income stream and with irregular income are borrowers who can most benefit from our bank statement mortgage loans. A large percentage of our clients at The Gustan Cho Team are self employed borrowers who benefit with our Bank Statement Mortgage Loan Program.

Here is the ideal borrower for Bank Statement Mortgage Loans:

  • Borrowers who are self-employed
  • Borrowers who only earn seasonal income
  • Borrowers who are consultants and/or promoters
  • Tax-Preparer, Accountant, CPA
  • Freelancers
  • Artists
  • Self Employed Borrowers who do not have a steady income stream or consistent regular income

How Does Bank Statement Mortgage Loans Work?

In lieu of two years tax returns, W-2s, paycheck stubs, and other documents required to process the loan, the underwriting requirements with bank statement mortgage loans is primarily based on bank statements and a Profit and Loss Statement of the borrower’s business.

There Are Three Different Types Of Bank Statement Mortgage Loan Programs

Type # 1: Personal And Business Combined Bank Statements

  • Provide most recent 12 months bank statements
  • Underwriter can request up to 24 months of bank statements
  • Borrower need to provide a Profit And Loss Statement prepared by their Accountant and/or CPA
  • Underwriter will carefully review the expenses stated on the Profit and Loss and compare it to the type of business borrower is in
  • The Mortgage Underwriter will cross check the P and L to the bank statements provided and that will be the determinant of the revenue
  • Deposits from the bank statements needs to be not less 5% of the revenue from the Profit and Loss Statements

Type # 2: Using Personal Bank Statements And NOT Business Bank Statements

  • Profit And Loss Statement is not required
  • Underwriter will only go through personal bank statements
  • Need to provide most recent 12 months bank statements
  • Underwriter may request up to 24 months bank statements
  • Although business bank statements will not be used to credit/income qualify, three months of bank statements is required to determine the maintenance of separate bank accounts.
  • Month income is determined by averaging the annual deposits of bank statements.

Type # 3:  Using Business Bank Statements And NOT Personal Bank Statements

  • Borrower needs to provide most recent 12 months business bank statements and not personal bank statements
  • A Profit and Loss Statement prepared by a CPA or Accountant need to be provided
  • Deposits from the bank statements needs to be not less 5% of the revenue from the Profit and Loss Statements

Overdrafts On Bank Statements

Overdrafts on bank statements is frowned upon and can disqualify borrowers from Bank Statement Mortgage Loan Program.

  • It is up to underwriter discretion to determine whether or not overdrafts will be allowed
  • No more than 3 NSF/Overdrafts are permitted
  • Every case of overdrafts on bank statements will be viewed on a case-by-case scenario by the underwriter and the underwriting manager has the final say

Qualifying For Bank Statement Mortgage Loans

Self Employed Borrowers who do not qualify for traditional government and conventional loans can now qualify with our bank statement mortgage loan program with The Gustan Cho Team. Home Buyers who need to get qualified and get a pre-approval for a home purchase or homeowners who need to refinance their homes, please call Gustan Cho at 800-900-8569 or text Gustan on his cell at 262-716-8151 for faster response or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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