Navigating Mortgage Challenges for the Self-Employed

Mortgage Options for Self-Employed Borrowers

Mortgage Challenges for Self-Employed

Self-employed individuals face unique challenges when applying for a mortgage. Traditional income verification methods rely on W-2’s and tax returns which can be difficult for those who write off a lot of business expenses and show little taxable income. But there are several ways to help non-W2 borrowers qualify for a mortgage.

Using a Co-Signer for Mortgage Qualification

One option is to use a co-signer: a business partner, parent or relative who can show higher income. As long as the co-signer’s income can cover their own debts and the mortgage payment, this can help get approval for the loan. A co-signer’s good credit can make a big difference in qualifying for a mortgage even if the primary borrower’s reported income is lower due to tax deductions.

Bank Statement Programs for Self-Employed Borrowers

For self-employed individuals with strong cash flow but little taxable income, a bank statement program can be the answer. Lenders can use business bank statements from the past 12 months to calculate an average of the borrower’s deposits. This average is used to calculate income for mortgage qualification purposes.

For example, if a business deposits $50,000 a month, $600,000 a year, a lender may use a percentage of those deposits—often 50%—as qualifying income. So the borrower’s qualifying income would be $300,000 a year or $25,000 a month and it’s easier to get a mortgage.

Who is a Bank Statement Program for

This is perfect for self-employed borrowers with good credit, large down payments and lots of assets or reserves. By looking at cash flow instead of taxable income, bank statement programs is a way for entrepreneurs and business owners to get into a home.