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Self Employed Mortgage Loan Programs: Bank Statement Loans

Self Employed Mortgage Loan Programs: Bank Statement Loans

This BLOG On Self Employed Mortgage Loan Programs Was UPDATED On April 2nd, 2019

There are two types of self-employed mortgage loan programs:

  1. The first Self Employed Mortgage Loan Programs is the traditional full doc government and/or conventional loan program
  2. The second Self Employed Mortgage Loan Programs is the comeback of the bank statement loans for self-employed borrowers

Bank Statement Mortgage Loans For Self Employed borrowers requires no tax returns.

  • Self Employed borrowers need to provide either two years of personal bank statements and/or two years of business bank statements
  • How this Self Employed Mortgage Loan Programs work is that if the borrower provides 24 months bank statements, then 50% of the bank deposits are used
  • The 24 months is averaged and 50% of the deposits are used as income
  • With personal bank statements, 100% of the bank deposits can be average over the past 24 months
  • That average will be used as the borrowers’ income
  • It needs to be from the same bank
  • No overdrafts allowed. 20% down payment is required
  • Mortgage Rates will be higher than traditional mortgage loans
  • Lower down payment possible with higher credit scores

Traditional Self Employed Mortgage Loan Programs

If a mortgage loan borrower works as a salaried employee or hourly employee, they just need to provide their W-2s for the past two years and their most recent paycheck stub.

  • The mortgage lender will also ask borrowers to provide prior two years tax returns to see what type of expenses borrower wrote off where it might possibly reduce their monthly gross income
  • However, mortgage income qualification calculations are more tricky when it comes to self-employed mortgage borrowers
  • Many self-employed mortgage borrowers make tons of income but if they write off a lot of money as expenses, their net adjusted gross income will affect the minimum income required for them to qualify for a residential mortgage loan

How Underwriters Qualify Self Employed Mortgage Borrowers

There are certain documents that self-employed mortgage borrowers need to provide their lenders in order to see the income they can use to qualify for their mortgage loan.  The following documents will most likely be provided to your lender in order for them to calculate income for self-employed mortgage borrowers.

  • Two years of tax returns for both your business and your personal returns
  • Schedule C will be analyzed
  • Schedule C is the section where you provide your profit and loss from your business
  • Schedule C is normally for a business where you are the sole owner of your business, also known as a sole proprietorship
  • Schedule E will be analyzed
  • Schedule E of tax returns are used for real estate holdings, real estate income, royalty income, partnership income, S corporations, estates, Treal Estate Mortgage Investment Conduit, and real estate investment trusts
  • The 1120S if borrower have it on tax returns
  • Form the 1120S is for S Corp report of the profit and loss of business
  • K-1 forms need to be provided if it applies to the borrower
  • K-1 forms reveal the percentage of profit and loss related to sharing of the business
  • Profit and loss statements need to be provided
  • A profit and loss statement is an outline and summary of a business’s  annual income and expenses as well as profit and losses

Amending Tax Returns For Self Employed Mortgage Borrowers

Many self-employed mortgage borrowers ask me if they can amend their tax returns so they can change their tax write-offs so they can declare more income in order to qualify for a mortgage loan.

  • It is perfectly legal to amend tax returns
  • However, they need to wait a minimum of six months after you amending tax returns in order for the lender to be able to use the amended tax returns to qualify for a mortgage loan
  • On the flip side, if borrowers declare tons of income and little expenses for mortgage qualification purposes and amend tax returns after they close on the mortgage loan, borrowers are stepping into a gray area
  • Borrowers who amend tax returns right after they have closed on a mortgage loan and had intent in inflating their income just for qualification purposes, then it is illegal and can be classified as mortgage fraud
  • However, if the borrower did not have intent on defrauding or fudging income but realized that they forgot to deduct unexpected expenses after filing tax returns, then they should be alright

Self Employed Borrowers who need to qualify for a mortgage with a direct lender with no overlays on government and conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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