Investor · Simpsonville, SC · Member since 2014 · 15 posts · 5 votes
Hello Bigger Pockets Family!
I was wondering how many of you have a small business or some other form of income that replaces a W2. How do you get financing from a bank without a W2?
Any articles, books, youtube videos you can point me to?
The requirement of the W2 really depends on the type of property you are looking to purchase; they become less important with larger properties. In any event you should be able to submit your tax returns. It is important to work with a lender that works regularly with self-employed people. If you are working with a broker, they should also be well versed in self-employed financing.
The requirement of the W2 really depends on the type of property you are looking to purchase; they become less important with larger properties. In any event you should be able to submit your tax returns. It is important to work with a lender that works regularly with self-employed people. If you are working with a broker, they should also be well versed in self-employed financing.
@Joshua Cochran to add on to the advice of @Charles Carillo it also can't hurt to have all your records and financials up to date, build up your credit score, and look at other avenues like setting up a HELOC if you have solid equity in your primary if you don't want to go the bank loan route.
A W2 isn't a necessity for a conventional loan. You'll need two years of tax returns to show that you know what you are doing and can create a reliable and consistent income. If you can't get approved now, it's likely either because you haven't been self employed long enough or you aren't making enough money to support the loan you want.
Some banks offer bank statement loans in which the bank allows you to verify your income, and qualify for a loan, using your bank statements instead of tax returns, W2s,and pay stubs. These loans are especially beneficial for business owners or self-employed individuals who want to buy or refinance a home using their true net income. I work with multiple lenders that offer asset based mortgages, where they look at the asset, credit, and experience.
I was just told by a lender that mortgage companies are not writing contracts with self-employed due to the pandemic. Ugh! Someone has to be smarter than that....
Time for a new lender @Kirsten Milliken! Seriously though, there are definitely people out there writing loans for self employed folks.
@Joshua Cochran, if you don't have a w-2, most banks will want to see 2 years worth of tax returns to determine what your income is and process a possible loan accordingly. This is the route I am going.
Of course, there are other (some creative and some more expensive) ways of doing it, such as statement only loans.
There is a difference between not having a W2 and not having a proven track record. If you quit your job and start a business, you need to have a profitable business and track record. Since you can't use your paycheck as proof of income, you need to use income statements, bank statements and tax returns instead.
Generally speaking you need two years worth of tax returns to prove stability in your business. Too often people quit their W2 and get outraged a month later when nobody wants to lend to them. A bank is evaluating risk and new businesses are risky. Another issue with small businesses can be large write offs that result in small net incomes or undeclared income from cash transactions. The lender is looking at the numbers.
Reopening this, @Stephanie P. - I like the idea of using DSCR to show that I the property I am buying qualifies itself. Do you know a good referral for a commercial lender that would do this?