NON-QM Loans For Self-Employed Borrowers

NON-QM Loans For Self-Employed Borrowers

Gustan Cho Associates are mortgage brokers licensed in 48 states

This article will cover qualifying for non-QM loans for self-employed borrowers’ home purchases with no income tax returns. In 2022, over thirty million people were self-employed in the United States. That is about 10% percent of the workforce. Lenders must follow strict and specific guidelines for self-employed borrowers on traditional mortgage loans with traditional income calculations.

The biggest hurdle self-employed borrowers face is usually the debt-to-income ratio. This is due to the ability of self-employed borrowers to write off expenses on their income tax returns.

How do Mortgage Underwriters Calculate Self-Employed Income?

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Lenders use the adjusted gross income. Adjusted Gross Income is total revenues with fewer deductions by the self-employed borrowers. Adjusted gross income often yields an income where borrowers cannot qualify for mortgages. Self-employed wage earners can utilize unreimbursed business expenses to offset their gross income. Therefore, the adjusted gross income is low, or in many instances, negative, which disqualifies them to meet the income requirements on traditional mortgages.

With the launch of non-QM loans for self-employed borrowers with no income tax returns, bank statement deposits over the past 12 months can be used to qualify for a mortgage. Non-QM loans for self-employed borrowers are for primary homes, second homes, and investment properties. Gustan Cho Associates has dozens of unique non-QM mortgage loan options for self-employed homebuyers.

How Are Debt-To-Income Ratios Calculated on Self-Employed Borrowers

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Debt-to-income ratios for self-employed borrowers are calculated by a two-year average based on IRS tax returns. There are many write-offs and deductions to which self-employed borrowers are entitled when they file their taxes. This is a double-edged sword when you are looking for a loan.

The deductions can kill your income on paper. The two-year average can be tough to maintain in many cases. Most small businesses take at least three years to generate any profit. All it takes is one not-so-good year, and you could be out of luck.

Case Scenario on How Underwriters Calculate Self-Employed Income

Until recently, with the introduction of NON-QM loans for self-employed borrowers, self-employed borrowers had difficulty qualifying for mortgages. Below is an example case scenario on how mortgage underwriters calculate self-employment income on traditional government and conventional loans. The underwriters will have to use the lower of the two years for borrowers with declining income.

See below:

Example 1– income in 2016 – $72,000

  • Income in 2017 – $60,000
  • $60,000 / 12 months = $5,000 monthly income

Example 2– income in 2016 = $60,000

  • Income in 2017 = $72,000

Since the income is increasing, a two-year average will be used.

  • $60,000 + $72,000 = $132,000
  • $132,000 / 24 months = $5500 monthly income

How Does NON-QM Loans For Self-Employed Borrowers Work

The good news is that NON-QM loans for self-employed borrowers are available for these borrowers. Borrowers can use a one-year average!  The only catch is borrowers must use the most recent year’s tax return. These NON-QM loans do not allow for extensions to file taxes.

For 2018, borrowers’ IRS returns must be filed before April 17. Filing for the extension is very common. But will not work for obtaining a mortgage in this case. For self-employed borrowers trying to obtain a mortgage, this program can increase their buying power. The borrower’s business must be in existence for two full years. This will be verified by a business license or with the Secretary of State. A complete 4506-T form will be needed to verify your tax returns with the IRS.

What Do You Need To Qualify For Non-QM Loans For Self-Employed Borrowers

Owner Occupied and Second Homes:

  • 620 – 659 credit score requires a 15% down payment.
  • 660 credit score or higher requires 10% down payment.
  • 3 months reserves (minimum) (One Month Reserves is one month of PITI).
  • 6 months reserves for 2nd homes.
  • Seller concessions are allowed at 6%.

Investment Properties:

  • 640 credit score or higher requires a 20% down payment.
  • 680 credit score or higher requires a 15% down payment.
  • Six months of reserves for investment properties.
  • 2% seller concessions for investment properties.

How To Qualify For One-Year Tax Returns Non-QM Loans For Self-Employed Borrowers

The process to obtain this loan is very similar to any other mortgage loan. Borrowers will contact a mortgage loan officer at Gustan Cho Associates and provide the following:

  • Last 60 Days Bank Statements – to source down payment.
  • Last Two Years’ Tax Returns (the only most recent year for income).
  • Driver’s License.
  • Home Owner’s Insurance Quote.

Next, borrowers will complete an application online, and your pre-approval process will start. Many questions will pop up while doing due diligence and completing research looking for a mortgage. Please contact the NON-QM expert, Mike Gracz, at (800) 900-8569 to review your specific scenario. Free one-on-one consultations are available seven days a week!

Lite Doc Non-QM Loans With Limited Docs Required and No Tax Returns

Limited Docs Required And No Tax Returns

Gustan Cho Associates offers the new Lite Doc Non-QM Mortgage Loan Program for borrowers with 720 FICO and 20% down and assets. Borrowers with at least 20% down payment with at least 20% down payment can qualify for the all-new Lite Doc Non-QM Loan Program.

No tax returns are required. We can accept a P and L by a CPA, which will be sufficient. For more information, contact Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at

Best Non-QM Lenders For Self-Employed Borrowers

Michael Gracz is a senior loan officer with Gustan Cho Associates and a contributing editor for Gustan Cho Associates Mike Gracz is also The NON-QM Loan Expert at Gustan Cho Associates. Mike has originated and funded countless non-QM loans for self-employed borrowers.

Many of Mike Gracz’s associates at Gustan Cho Associates go to Mike if they have questions about non-QM loans for self-employed borrowers. Michael Gracz is available seven days a week, evenings, weekends, and holidays. Any questions on non-QM loans and bank statement mortgage loans for self-employed borrowers, call or text Mike Gracz at (800) 900-8569 or text, Michael for a faster response. Gustan Cho Associates team is available seven days a week, evenings, weekends, and holidays.

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