Getting a loan with self employment income

Private Lending & Conventional Mortgage Advice
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Getting a loan with self employment income

Justin Golden
New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote

Good afternoon!

I just recently separated from the military and my wife and I will be moving to Washington, D.C.

I will be starting a business and my wife makes self employment income as well. Obviously this does not look good to a conventional lender, so I am looking for any advice on how to get home loans for properties. Any advice helps!

Thank you!

1Reply
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Most Popular Reply

Nick BelskyBusiness Member
Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
4y

@Justin Golden

Bank Statement Loan all the way.  Rates will be higher than Conventional but they are a viable option.  50% of your business assets counting is crap, by the way.  Find another lender if you run into that.  Many will do 75% up to 100% based on the amount of ownership you and your wife have.  The ones that limit you to 50% are usually more expensive anyways.

These programs are Non-QM which means the lenders all have a different set of investors who fund them.  The guidelines are different and some are cumbersome to navigate.  Essentially, what you end up with a income based on regular, consistent deposits in your bank accounts.  Most lender won't allow the accounts to be mixed with personal and business, but some will.  Once they add up all the qualified deposits for 3, 6, 9, 12, 18, or 24 months (yes, they can be any of these increments - lesser is a higher rate!), they will usually apply an Expense Factor to your income to reduce it to a qualifying monthly income.  Some lenders will give you options; actual expenses as verified with a letter from a CPA or accountant, and automatically applied factor based on your business type (these can be anywhere from 10-60%), or you can provide a P&L or other financial statements to prove your actual expense ratio.  

Your DTI still comes into play as well. Most are 50% DTI, but will have other adjustments at higher DTIs. For example, the lender may require that you have 3 months of reserves available at 42% DTI, but if you go over 45%, then they may increase the reserve requirements to 6 months or even 12 months. The flip side is that some will even "reward" you for having a low DTI where they may not require reserves at all.

Assets come into play as well when qualifying.  You need to show you have sourced funds available as you would with conventional or agency loans.  Personal funds are usually counted at 100%, but as noted by others, if you are using funds in a business account, some lender will take another expense factor against you and only allow a percentage of the funds in your account to be used as down payment, closing costs, and even as reserves.  This is very frustrating to many as you get penalized twice with an "expense factor".  I find the better lenders will base the business allowance of funds equal to the amount of ownership the borrower has.  So if you are a sole member, your funds count at 100%.  If you are in a partnership and only own 25%, then you can only count 25% of the available balance in your business account.  Most borrowers I've encountered who are in partnerships are not trying to use business funds at all and are relying on personal funds.

A big thing to note here is that you DO NOT have to show your tax returns! If a lender asks for them, tell your broker to find another lender. Just like with conventional lending, tax returns can kill your qualifying income and make your DTI skyrocket. The whole reason bank statement loans exist for self employed borrowers is to avoid Tax Returns as documents required.

I love doing these loans and have helped many many SE borrowers purchase homes when they thought they'd have to either rent forever or pay cash for a home. Many programs will let you get in for as little at 10% down, but every now and then I will see a promo for 5% down. These work on second homes and investments as well, but usually 15% down on seconds and still the good ol' 20% down on investments. With DSCR loans, bank statement loans for investments just don't make sense anymore, but some still do them.

Cheers!

[email protected]
Belsky Mortgage, LLC527 Reviews
WebsiteView Page
3Reply
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26 Replies

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  • Dustin RosenbergBusiness Member
    Lender · El Segundo · Member since 2022 · 27 posts · 8 votes
    4y

    Are you able to show a consistent amount of money being deposited into your account monthly? I recommend finding a lender that can do a bank statement program.

    [email protected]800-913-2169
    Convoy Home Loans.4.8336 Reviews
    WebsiteView Page
    2Reply
  • Kevin Woodard
    Lender · Nationwide · Member since 2021 · 220 posts · 105 votes
    4y

    Congrats on your EAS and thank you for your service. 

    What type of deal are you looking to fund with this loan (e.g. Buy and Hold, Fix and Flip, financing for a primary, )?

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    I did a bank statement loan last time I purchased, worked fine. They gave me credit for 50% of the bank statement total.

    2Reply
  • Justin Golden
    OP
    New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote
    4y

    @Dustin Rosenberg

    We are able to prove consistent income for my wife, but not myself of course.

    We have plenty of money saved up that can easily afford a down payment.

    Do most conventional lenders do this type of loan?

    0Reply
  • Justin Golden
    OP
    New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote
    4y

    @Kevin Woodard

    Thank you for the support!

    We are looking a buy & hold. My goal is to purchase the property, live in it for a year or so, then rent it out.

    0Reply
  • Justin Golden
    OP
    New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote
    4y

    @Bruce Woodruff

    Interesting.

    I’ve never really heard of a bank statement loan.

    When you say 50% of the bank statement, what do you mean?

    Could you elaborate further, please?

    Thanks!

    0Reply
  • Account Closed
    Lender · CA · Member since 2022 · 48 posts · 23 votes
    4y

    Hello, @Justin Golden

    I recommend trying a hard/private money lender. With a HML, we typically do not require any proof of income such as W-2s, tax docs, etc. Really, bank statements are all that are verified to ensure you have the funds needed to close.

    Would love to chat if you have any questions!

    0Reply
  • Allen Collins
    Member since 2022 · 24 posts · 20 votes
    4y
    Quote from @Justin Golden:

    @Bruce Woodruff

    Interesting.

    I’ve never really heard of a bank statement loan.

    When you say 50% of the bank statement, what do you mean?

    Could you elaborate further, please?

    Thanks!


    I'm also self employed and having issues. With my W2 income from my business I was approved for a $400k loan but when they factored in the write-offs from my businesses it basically has me at no income so they offered me the bank statement program. Only issue with this program is the interest rate is 6.5% with 2 points AND they won't allow me to refinance for 36 months. I can deal with the 6/5%/2 pts IF I am able to refinance once I get my income situated which would be in about a year but being locked in for 36 months doesn't sit well with me. Definitely interested in what everyone has to say in this post.

    1Reply
  • Justin Golden
    OP
    New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote
    4y

    @Allen Collins

    Wow. Interesting!

    So they factored in your write offs and basically that reduced what your qualifying income is?

    Hopefully I’m understanding that correctly.

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Justin Golden:

    @Bruce Woodruff

    Interesting.

    I’ve never really heard of a bank statement loan.

    When you say 50% of the bank statement, what do you mean?

    Could you elaborate further, please?

    Thanks!


    Sure, my bank statements for the business account added up to (let's say) $200,000 for the past 12 months. So they gave me credit for $100,000 in income for the loan.

    1Reply
  • Patrick DruryBusiness Member
    Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
    4y

    @Justin Golden
    Have you looked into DSCR loans?

    [email protected]614-412-4565
    Reafco-555 Reviews
    View Page
    1Reply
  • Justin Golden
    OP
    New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote
    4y

    @Bruce Woodruff

    Wow. So that significantly reduces your purchasing power. That’s unfortunate to hear.

    Thank you for the info, though.

    0Reply
  • Justin Golden
    OP
    New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote
    4y

    @Patrick Drury

    Could you explain a little more on the DSCR program?

    Thanks!

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Justin Golden:

    @Bruce Woodruff

    Wow. So that significantly reduces your purchasing power. That’s unfortunate to hear.

    Thank you for the info, though.


     Not really. After I expensed out that $200k, my legit tax income was only $40k...so showing $100k was a lot better......

    1Reply
  • Dustin RosenbergBusiness Member
    Lender · El Segundo · Member since 2022 · 27 posts · 8 votes
    4y
    Quote from @Justin Golden:

    @Dustin Rosenberg

    We are able to prove consistent income for my wife, but not myself of course.

    We have plenty of money saved up that can easily afford a down payment.

    Do most conventional lenders do this type of loan?



    Most conventional lenders do not do that.. I would look for a lender that does non-qm loans

    Let me know if you have any more questions.

    [email protected]800-913-2169
    Convoy Home Loans.4.8336 Reviews
    WebsiteView Page
    1Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    4y

    @Justin Golden

    Bank Statement Loan all the way.  Rates will be higher than Conventional but they are a viable option.  50% of your business assets counting is crap, by the way.  Find another lender if you run into that.  Many will do 75% up to 100% based on the amount of ownership you and your wife have.  The ones that limit you to 50% are usually more expensive anyways.

    These programs are Non-QM which means the lenders all have a different set of investors who fund them.  The guidelines are different and some are cumbersome to navigate.  Essentially, what you end up with a income based on regular, consistent deposits in your bank accounts.  Most lender won't allow the accounts to be mixed with personal and business, but some will.  Once they add up all the qualified deposits for 3, 6, 9, 12, 18, or 24 months (yes, they can be any of these increments - lesser is a higher rate!), they will usually apply an Expense Factor to your income to reduce it to a qualifying monthly income.  Some lenders will give you options; actual expenses as verified with a letter from a CPA or accountant, and automatically applied factor based on your business type (these can be anywhere from 10-60%), or you can provide a P&L or other financial statements to prove your actual expense ratio.  

    Your DTI still comes into play as well. Most are 50% DTI, but will have other adjustments at higher DTIs. For example, the lender may require that you have 3 months of reserves available at 42% DTI, but if you go over 45%, then they may increase the reserve requirements to 6 months or even 12 months. The flip side is that some will even "reward" you for having a low DTI where they may not require reserves at all.

    Assets come into play as well when qualifying.  You need to show you have sourced funds available as you would with conventional or agency loans.  Personal funds are usually counted at 100%, but as noted by others, if you are using funds in a business account, some lender will take another expense factor against you and only allow a percentage of the funds in your account to be used as down payment, closing costs, and even as reserves.  This is very frustrating to many as you get penalized twice with an "expense factor".  I find the better lenders will base the business allowance of funds equal to the amount of ownership the borrower has.  So if you are a sole member, your funds count at 100%.  If you are in a partnership and only own 25%, then you can only count 25% of the available balance in your business account.  Most borrowers I've encountered who are in partnerships are not trying to use business funds at all and are relying on personal funds.

    A big thing to note here is that you DO NOT have to show your tax returns! If a lender asks for them, tell your broker to find another lender. Just like with conventional lending, tax returns can kill your qualifying income and make your DTI skyrocket. The whole reason bank statement loans exist for self employed borrowers is to avoid Tax Returns as documents required.

    I love doing these loans and have helped many many SE borrowers purchase homes when they thought they'd have to either rent forever or pay cash for a home. Many programs will let you get in for as little at 10% down, but every now and then I will see a promo for 5% down. These work on second homes and investments as well, but usually 15% down on seconds and still the good ol' 20% down on investments. With DSCR loans, bank statement loans for investments just don't make sense anymore, but some still do them.

    Cheers!

    [email protected]
    Belsky Mortgage, LLC527 Reviews
    WebsiteView Page
    3Reply
  • Allen Collins
    Member since 2022 · 24 posts · 20 votes
    4y
    Quote from @Justin Golden:

    @Allen Collins

    Wow. Interesting!

    So they factored in your write offs and basically that reduced what your qualifying income is?

    Hopefully I’m understanding that correctly.


     Yessir. I am trying some creative means of financing, I will shoot you a message with what I come up with maybe it can help you as well.

    1Reply
  • Justin Golden
    OP
    New to Real Estate · VA · Member since 2021 · 8 posts · 1 vote
    4y

    @Nick Belsky

    This is incredibly detailed information you are providing. Thank you for that!

    I will admit that I will need to look further into bank statement loans to truly grasp the concept.

    One thing to note is that my wife’s pay is a steady paycheck every month. She works for a company outside of the US, which to the IRS is considered the same as self-employed, from my understanding. With that being said, are there plenty of lenders out there that would accept her full salary under this type of loan? I’m having difficulty understanding what/how they deduct from that income.

    Thank you!

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    4y
    Quote from @Account Closed:

    Hello, @Justin Golden

    I recommend trying a hard/private money lender. With a HML, we typically do not require any proof of income such as W-2s, tax docs, etc. Really, bank statements are all that are verified to ensure you have the funds needed to close.

    Would love to chat if you have any questions!

    You won't be able to do it if they're going to live in it.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    4y
    Quote from @Allen Collins:
    Quote from @Justin Golden:

    @Bruce Woodruff

    Interesting.

    I’ve never really heard of a bank statement loan.

    When you say 50% of the bank statement, what do you mean?

    Could you elaborate further, please?

    Thanks!

    I'm also self employed and having issues. With my W2 income from my business I was approved for a $400k loan but when they factored in the write-offs from my businesses it basically has me at no income so they offered me the bank statement program. Only issue with this program is the interest rate is 6.5% with 2 points AND they won't allow me to refinance for 36 months. I can deal with the 6/5%/2 pts IF I am able to refinance once I get my income situated which would be in about a year but being locked in for 36 months doesn't sit well with me. Definitely interested in what everyone has to say in this post.


     Being locked in at 6.5% right now is a good thing.  Rates are only going higher.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    4y
    Quote from @Justin Golden:

    Good afternoon!

    I just recently separated from the military and my wife and I will be moving to Washington, D.C.

    I will be starting a business and my wife makes self employment income as well. Obviously this does not look good to a conventional lender, so I am looking for any advice on how to get home loans for properties. Any advice helps!

    Thank you!

    Thank you for your service.  We couldn't do what we do every day without people like you standing a post and your wife supporting you at home.
    A bank statement loan would work for you if you're going to live in the property.  10% down with no mortgage insurance is normal.  There are times that you can exceed 50% of the deposits if your wife's expense ratio is low.  Software engineers, programmers, mortgage bankers/brokers really have low overhead and it doesn't make sense that their expense ratio would be like that of a manufacturer that has money tied up in inventory.
    Find a good mortgage broker to do this for you.  If you need a referral, don't hesitate to contact me. 
    All the best
    Stephanie 
    0Reply
  • Miranda Holland
    Lender · Macon, GA · Member since 2015 · 191 posts · 59 votes
    4y

    @Allen Collins

    There are no seasoning requirements with the loans I offer. After the renovations are complete, you can refi right away. I will like to discuss this with you in more detail

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    4y
    Quote from @Justin Golden:

    Good afternoon!

    I just recently separated from the military and my wife and I will be moving to Washington, D.C.

    I will be starting a business and my wife makes self employment income as well. Obviously this does not look good to a conventional lender, so I am looking for any advice on how to get home loans for properties. Any advice helps!

    Thank you!


     There is also a 3-month bank statement loan program available. Most of them are 12 months or more. This one could work depending on your scenario. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
    WebsiteView Page
    0Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    4y

    @Justin Golden thanks   1) lenders  will likely require 2  fulls yrs  of  returns  for the  self  employment  in order to  use this incme for  qualifying  .....so if the business  started today - you would need to  wait until  mid  2024  for a traditional loan  2) can you  get a  relative to  be a  " non occupant  co borrower "?

    0Reply
  • Darian Sanayei
    Real Estate Agent · Temecula CA · Member since 2019 · 50 posts · 16 votes
    4y

    @Justin Golden just being self employed does not limit you from conventional traditional mortgages. With that being said lenders for a conventional loan lenders require 2 years history and calculate your net income (after write off, besides depreciation) and average the previous two years. Unless you have been self employed in that industry for more than 5 years you can most the time just use the most recent years net income.

    A lot of self employed borrowers chose a bank statement loan because their net income is not enough to qualify for the home they want with a traditional conventional mortgage. The only fault to bank statement loans is that it has a higher interest rate, as well as most the time 10% minimum down payment required, and typically need a good credit score.

    You have to factor in what makes more sense. Write off less a pay more taxes, or go the bank statement route.

    Their are many options besides these two loan products as well. Investment loan products, DSCR, asset loans, no ratio, hard money, private money, etc.

    0Reply
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