Traditionally, self-employed mortgage borrowers are more heavily scrutinized by mortgage companies because of their gyrating income. If their business stops the revenue stops and their ability to make a mortgage payment could be impacted. That’s the rationale behind why lenders look at self-employed borrowers more stringently.
Lenders request both personal and/or corporate returns from self-employed borrowers. Lenders generally must average these returns out over a two-year period. Not a bad thing if you’re showing enough income, but absolutely could be problematic if one year was strong and another year was bad.
A non-traditional way of securing mortgage financing is to use alternative forms of income documentation especially if your tax returns don’t paint a favorable picture.
One such method is to use a bank statement program. Know this-bank statement programs vary from lender to lender. The more relaxed from a guideline standpoint, the pricier your mortgage will be. Your biggest goal when getting alternative forms of qualifying should not be rate and cost, but it should be payment and ability to qualify-that should be your focus. It goes without saying that you’re going to pay more for such type of financing than if you supplied traditional supporting documentation in the form of federal tax returns.
Some characteristics of bank statement loans:
At least a 680-credit score with no previous derogatory credit of any kind that means no bankruptcy, no short sale and no foreclosure.
You’ll need at least 25 percent down or a 25 percent equity position in the house if you’re refinancing.
Up to a 50 percent debt to income ratio can be considered
As previously mentioned the rate and the pricing associated with such a program is going to be more than if you were going with traditional financing, so for example, traditional financing for 30-year fixed rate mortgages with excellent credit and super strong equity in the property for a single-family home is hovering just a hair under 4 percent now.
This would mean that for a non-traditional program it’s realistic that you would be paying to the mid fours or a low five range possibly even paying one discount point associated with your mortgage.
If you’re looking to do this when you pick a lender, provide them with everything they ask for and that includes letting them pull a copy of your credit report and run their ratios, run their calculations and provide them all the supporting financial documentation they request. Not half of the information, not part of the information – you must be willing to just accept that when you have a unique financial situation you must be willing to provide them with all of your supporting documentation, so they can pragmatically tell you how they can help you be successful on your purchase or refinance.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.