If you are a borrower who is self-employed, a 1099 employee, a full time freelancers, or a small business owner, you might find the home-buying process frustrating because you do not fit “inside the box” for traditional mortgage underwriters. Even though you earn a healthy income and have assets, you may be denied a conventional loan. But don’t lose hope! A Bank Statement Loan can be a great option for you!
You see, according to conventional guidelines, lenders are required to look at a borrower’s net income from the previous 2 years in order to determine the ability to repay the loan. But self-employed borrowers don’t always have traditional income situations. After several write-offs or reinvestments into the company, self-employed borrowers often show low or negative income on their tax returns, making it difficult to qualify for a home that they can actually afford.
Bank statement loans from Sunray Mortgage can often be a good solution for borrowers who are self-employed. Sound like you? Well, let us explain further!
A Bank Statement Loan Could be the Solution
Recently, an alternative option called a bank statement loan has become more common. With this loan product, Sunray Mortgage will look at the borrower’s deposits on the personal or business bank statements over the last 12 months. They will then calculate the borrower’s overall monthly “income” based on the bank statements.
With this approach, the tax return is ignored. If there is a steady stream of income going from the company to the borrower, it is shown on the bank statement. The lender can then prove that the borrower does have the ability to repay.
Terms for Bank Statement Loans
Typically, you can expect either a traditional 30-year loan or a 5/1 ARM loan on these types of products. When deciding between the two, it is important to analyze the expectations for the company in the next 3-5 years. If you expect the company to continue to invest and expand, therefore continually producing lower than normal tax returns, it may be most beneficial to go with a fixed rate on a 30 year note. If you expect to show more taxable income as the company grows and generates more cash flow, you may find it most beneficial to start with the 5/1 ARM (fixed for 5 years). Then, when you have 2 years of consistent, strong income on your tax returns, you can look to refinance the property into a conventional fixed rate mortgage with a lower interest rate.
Rates for Bank Statement Loans
These bank statement loan options do carry slightly higher interest rates. However, in some cases they may present the best option for self-employed borrowers to purchase the home they want despite not fitting traditional lending guidelines, which can be inflexible if you have a non-traditional career path.
How to Get Started
Here at Sunray Mortgage, we are a Texas leader in providing bank statement loans to borrowers. We offer competitive rates, and can work to get you approved in less than a week. Contact one of our Loan Experts at (972)559-9070 and speak to them about this great alternative.