3 min read

Self-Employed Mortgages With No Tax Returns

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That’s quite a headline, right?  Well, it’s true.  There are non-QM loans available where self-employed workers can qualify with no tax returns.  How is such a thing possible?  I’m glad you asked.  There’s an alternative to conventional loans called bank statement loans that use 12-24 months of bank statements as the cornerstone of a borrower’s application.  Let’s discuss.


Maybe you are self-employed and run a really successful business.  You maximize your legal deductions, and you don’t have much income to show on your W2.  This is a common scenario for small business owners, and this strategy helps them when it comes to accounting.  This becomes a challenge when that small business owner is looking for a mortgage.  When it comes time to apply for a conventional loan from a big bank (like a 30-year fixed), the lender is going to want to see tax returns to determine eligibility.  Uh oh.  The borrower we just described isn’t going to have a tax return that will show enough income to support the loan they are looking for.  Enter the bank statement loan.


With a bank statement loan, lenders will start with 12-24 months of bank statements.  These bank statements are used to calculate an average monthly income.  This is done to help normalize irregularities in deposits when you are self-employed.  Maybe you run a seasonal business and make most of your money during certain months of the year.  Maybe you work on commission only.  Whatever the case may be, the bank statements help the lender determine how much income you bring in over a long period of time (12-24 months).   This helps the bank figure out how much you can borrow and your ability to repay the loan.


Once the lender has the bank statements and determines an average monthly income, they can also use that information to figure out a Debt to Income (DTI) ratio.  A Debt to Income ratio can seem really complex, but it’s a percentage that shows the amount of monthly expenses vs. income.  Lenders typically want this under 50%, but the smaller the percentage in a DTI ratio, the better.  If you’d like more information on how a DTI is calculated, check out this blog post.


Lenders will also look at the borrower’s credit score.  It’s common to think that you have to have an excellent credit score to qualify for a loan, and sometimes this is true.  With a bank statement loan, lenders will look at credit scores at 580 or higher.  Unlike the DTI, a higher number is better when it comes to a credit score, but don’t be discouraged if you have a credit score that isn’t excellent.  


The last important piece of information I want to share on a bank statement loan is about the down payment.  Expect a down payment in the 10-20% range for a bank statement loan.  However, there are a few factors that may determine if the down payment will be closer to 10% or 20%.  The factors are what has been discussed above.  Things like your credit score or DTI ratio will determine how much of a down payment will be needed for your loan.  


Bank statement loans are a strong alternative if you are self-employed or run a small business.  This blog post hopefully serves as a starting point for information on this type of loan, but it’s not exhaustive and won’t account for the details of your specific situation.  That’s why it’s important to reach out to an expert, like someone from Truss Financial Group.  The team at Truss will help you learn about how a bank statement loan might be a good choice for you.  Give them a call if you’re interested in learning more.

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