How to get a mortgage when you're self-employed

Mortgages for the self-employed can be daunting.  Small business owners and entrepreneurs are likely used to adversity and overcoming challenges.  So when it’s time for them to find a mortgage to purchase a home, they need to know how to overcome this challenge.  They likely won’t have the standard documents needed for a conventional mortgage like pay stubs and W2s to tell their financial story.  So what do they do?  I’d turn to Eminem for help.  Let me explain….

Look, if you had one opportunity to capture the house you wanted, would you capture it?  I’ll bet you would.  Hi there, Phil here from A Nightmare on Loan Street Blog, and I want to share some very important information on bank statement loans.  I know you may be feeling a little nervous about the mortgage process as a small business owner.  Palms sweaty?  Knees weak?  Arms heavy? We won’t even get near mom’s spaghetti for this one, but I will help you learn more information about how a bank statement loan may be a good fit if a conventional mortgage isn’t in the cards for you.

Bank statement loans are a specialty loan that use (you guessed it) 12 to 24 months of bank statements to verify your income.  The qualifications for a bank statement loan will be different among lenders, but you can expect a few common standards.  

Credit Score

Lenders are looking for a number over 500 for sure, but the higher the better. 

Debt to Income (DTI) Ratio

This is the percentage of your monthly cash flow that goes towards paying debts like utilities, car payments, credit card bills.  Lenders use this ratio to help determine if you have the cash flow on hand to make your monthly loan payment.  It’s favorable to be below 50% and lower is better.

Down Payment

Bank statement loans are riskier for the lender, so expect a down payment of 20% or more.  Having a high credit score and a low Debt to Income ratio can help your down payment amount.  

Loan to Value (LTV) Ratio

A Loan to Value ratio or LTV ratio is the amount of the loan compared to the value of the home you are purchasing.  When Loan to Value ratio is low, this improves your chances of getting the loan.  

Cash Reserves

Lenders will want to see 3 to 6 months of mortgage payments (minimum) in your bank account to show that you can make your monthly loan payment in case your income falls too low (or is seasonal).

So that’s the basics of bank statement loans.  Now that you have the information, you own it, you’d better never let it go.  If you’re self-employed or own a small business and want more information on bank statement loans, I’d recommend contacting the folks at Truss Financial Group.