If you are self-employed and have attempted to obtain financing, you know the amount of headache involved. Some have no issues but some have many issues. I am commonly met with frustration whenever I have a self-employed borrower come to me who is not able to get qualified for a “traditional” loan. The borrower will complain that they make way more money than I am giving them credit for in the pre-approval. Well, the reason for this is because on traditional conventional loan products we must go off the income that is claimed to the IRS. Which is usually much less than the gross income earned by a self-employed individual.
Want to hear the solution to all these roadblocks for self-employed borrowers? The 1099-only loan and the 12-month bank statement loan are the answer!
Foremost, the 1099-only loan product is exactly how it sounds. For our self-employed individuals, the 1099-only product will go strictly off the gross income showing off the 1099s earned by the borrower as opposed to the net. The 12-month bank statement loan will go off the average monthly revenue over 12 months of bank statements for the self-employed borrower. For both these products, we will go off the most recent year of income, but a borrower must be in business for at least 2 years. Both products allow for down to a 660-credit score and apply to primary, 2nd, and investment homes. Below are the down payment requirements for each:
1. Primary = 10% minimum down payment
2. 2nd Home = 10% minimum down payment
3. Investment Home = 15% minimum down payment
In addition, you can also utilize these programs for rate terms and cash-out refinances. In the past, these programs weren’t as prevalent due to the large difference in interest rates compared to conventional interest rates. Now, as conventional interest rates continue to rise to a level where these programs aren’t much different in rate, we are beginning to see these types of niche programs become more popular. We all know inflation is a running ramp and real estate is one of the best places to park your money. With these types of loan programs available, there is really no reason someone who is self-employed won’t be able to purchase a home using financing anymore.
For any specific questions regarding refinancing and investor-specific loan programs, always feel free to contact me directly with any questions!
by Andrew Augustyniak, Peoples Mortgage Co