Can a self-employed person get a mortgage?

The mortgage process can be difficult.  Like trying to interpret the movie Inception.  By the time it comes to income verification, you may be confused as to what level you’re on.  If you are self-employed or have irregular pay, this can really add an additional layer to the process.

I recently received an email from a reader who owns real estate in a vacation town.  It read “Phil, I love A Nightmare on Loan Street Blog.  You are clearly a very incredible talent, and I worship every word you write.  I have a question for you…I own real estate in a vacation town, and my rental income varies pretty widely during the year.  Summer is high, winter is not.  I’m having trouble with the big banks when it comes to a mortgage.  I don’t have a paystub to show them because this is my primary source of income.  Any tips?  Sincerely, your biggest fan Ryan.”

Wow, thanks Ryan.  I’d agree that I am incredibly talented.  I also think that I have a potential solution for you: a bank statement mortgage.

Bank statement loans are a non-qualifying mortgage, and this means that unlike conventional (qualifying) mortgages that you might get from a big bank, these loans don’t have the follow the same rules.  Lenders who offer bank statement mortgages can offer more flexibility, and part of that flexibility comes in the form of alternative income verification.

Ryan probably got asked to show some paystubs, a W2, and tax returns from a big bank.  As someone who makes the bulk of his income in the warmer months, things might look a little uneven because of when he receives his money. 

With a bank statement mortgage, lenders will look at 12-24 months of bank statements to come up with an average income for the borrower.  This can really help for those who don’t receive a regular paycheck.  And the more you can show (e.g. 24 months), the better.

Keep in mind that with a bank statement loan, the interest rates can be higher (0.5% to 1%), you’ll need a good credit score, and you may need a bigger down payment.  But this can be a real win-win situation.  You have a way to show a long-term view of your income that removes week to week or month to month variability, and lenders can use a lot of historical data to learn your financial story, and your ability to repay the loan. 

So if seasonal or irregular pay are presenting a challenge getting a conventional mortgage, you may want to consider the bank statement loan.  It might be your ticket to home ownership…and learning if the top stopped spinning at the end of Inception.