Are you self-employed and have tried to refinance? Have you tried purchasing a second home or investment property and been told you don’t qualify because you’re self-employed?
Many self-employed U.S. workers have experienced challenges during the last 18 months due to the pandemic. During this time, they couldn’t obtain home financing for either refinances or purchases. Due to the losses they may have shown for 2020, many self-employed individuals are still facing some roadblocks to getting approved for a mortgage.
Fortunately, potential solutions are now possible. Thanks to loan programs specifically tailored for self-employed individuals, many of these borrowers now can qualify for refinances, cash-out refinances and purchases. The following programs can qualify borrowers based on factors other than their tax returns.
Bank statement loans:
These programs require submission of bank statements for the last 12 to 24 months to compute income. For example, if your business shows $500,000 for 12 months in revenue, the income may be assumed as $250,000 or 50% of the deposits, the expense ratio. For companies with fewer expenses, the expense ratio could be as little as 15%, enabling the lender to compute a higher income for the purposes of calculating debt-to-income ratio (DTI).*
Cash flow:
This program computes the rent on the subject property in relation to the debt coverage of the property. If the appraised rental amount is equal to or exceeds the debt coverage (principle, interest, taxes, insurance), the loan can be approved.*
Stated income:
A profit and loss for the last 12 months prepared by the borrower is used to determine income.
Other terms that relate to some of these programs include: the ability for a 40-year interest-only loan, cash-out refinance, as high as 90% loan to value, and using an LLC name as opposed to using a personal name. While interest rates are certainly higher on these products than on more traditional products, these programs enable certain individuals to be approved when they otherwise might not be.
If you are self-employed, a financial adviser with customers who are self-employed, or a real estate agent with a buyer who fits this profile, please reach out to me, David J. Siegel, at [email protected] to see if this is a solution.*
* This is a brokered loan product and is not offered by Guaranteed Rate Affinity. Contact Guaranteed Rate Affinity for more information.
** Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact Guaranteed Rate Affinity for current rates and for more information.
By David Siegel
