Self Employed Home Loans: Bank Statements or 1099 Income
Why Consider Self Employed Home Loans?
Is a Bank Statement Mortgage Right for You?
Who Can Qualify for a Self Employed Home Loan Using 1099 Income?
- Small Business Owners: From boutique shops to local service providers, small business owners may leverage tax deductions for their business. Because of this, these borrowers often have tax returns that do not accurately reflect their yearly earnings, making it more difficult to prove their income and using W-2 income documentation. With a Bank Statement Mortgage, small business owners can instead use 1099 income to qualify for a home loan.
- Gig Workers: Rideshare drivers, delivery drivers, and other gig economy workers may have variable monthly earnings. With a Self-Employed Home Loan, gig workers can use their 1099 income documentation to qualify instead of traditional tax returns.
- Freelancers: Writers, designers, consultants, and other freelancers work on a per-project basis and may use alternative documentation to report their income. These borrowers may be able to qualify for a Bank Statement Mortgage by using a 1099, bank statements, or other alternative income documents.
- Independent Contractors: Skilled tradespeople like electricians, carpenters, and construction contractors can qualify for mortgage financing using bank statements rather than tax returns, helping them avoid roadblocks related to non-traditional income documentation.
How to Prove Self Employment Income for a Mortgage
- Business or Personal Bank Statements: Self-employed borrowers can provide 12 or 24 months of their business or personal bank statements to qualify for a Bank Statement Mortgage. Lenders analyze your qualified deposits and apply an expense factor to calculate how much you can qualify for.
- 1099 Income Documentation: With a Self-Employed Home Loan, borrowers can submit their 1099 income documentation to qualify. When using a 1099 to qualify you, lenders will look over the previous 1 to 2 years of income and apply a 10% reduction for business expenses. This 10% expense ratio allows lenders to qualify you on the other 90% of your income.
- Profit and Loss (P&L) Statements: Some small business owners may use a P&L statement to more clearly document their business income. With a Bank Statement Mortgage, these borrowers can submit a P&L statement as income to qualify for a loan. Some lenders may request a P&L statement to gain a better understanding of a borrower’s financial health, as these documents can provide insight into a business’s revenue and expenses over a specific period.
Have Questions About Income Documentation?
Self-Employed Loan Qualification Requirements
Homeownership Tips for Self Employed Borrowers
- Maintain Clear Records: Keep up-to-date financial records, including bank statements and P&L statements, to simplify the documentation process. You can refer to the IRS Schedule C Form for guidance on reporting your business income.
- Improve Your Credit Score: Regularly check your credit report for accuracy, and work on improving your score before applying.
- Understand Your Financial Landscape: Take the time to assess your financial health by reviewing income, expenses, and any fluctuations. Having a clear picture will help you present a stronger case to lenders.
- Build a Solid Emergency Fund: Ensure you have a sufficient emergency fund in place to cover unexpected expenses. This not only provides financial security but also demonstrates to lenders your ability to manage financial challenges.
- Financial Planning Review: Working with financial planners who specialize in self-employed finances can provide personalized strategies for budgeting, saving, and improving your overall chances of qualifying for a mortgage loan.
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Benefits of Choosing a Bank Statement Mortgage
No Tax Returns Required
Bank Statement Mortgages allow self-employed borrowers to submit the income documentation that makes sense for their situation. That means there are no tax return requirements for a self-employed mortgage.
Greater Flexibility
As a Non-Qualified Mortgage (Non-QM) solution, Bank Statement Mortgages aren’t required to adhere to the same qualifying guidelines as traditional QM loan options. Each Non-QM lender sets its own requirements, providing more options for self-employed borrowers.
Purchase or Refinance Solutions
Self-employed borrowers can use a Bank Statement Mortgage to purchase a home or refinance. At Newfi, self-employed borrowers can also use a Self-Employed Mortgage for a Rate & Term or Cash Out Refinance.
Applying for a Self Employed Mortgage
Discover the Benefits of a Bank Statement Mortgage
Ready to Start the Mortgage Process?
Frequently Asked Questions
How will my self employed income be calculated?
Calculating self-employed income for a mortgage is based on your unique situation. We can combine W-2, 1099, and Bank Statements to calculate your monthly income. When looking at your business or personal bank statements, we will review either 1 or 2 years of documentation and use our quick calculator to identify your income.
When using a 1099, we will review your total income and take away an expense ratio of 10% (unless otherwise provided) and qualify you on the remaining 90% of income. If you have several forms of income, we will add all of the sources together to determine your average monthly income. We can consider most sources of income that have a two-year history!
What documents do I need to qualify for a Bank Statement Mortgage?
Self-employed borrowers will need to submit all required documentation to qualify, such as:
- Proof of Income
- 12 to 24 Months of Personal or Bank Statement
- 1099 Income
- W2 Income
- 2 Years of Self-Employed Work History
- If you co-own a business, you’ll need to document how much of the business you own.
- Borrower Financial Details
- Property Details
The income documentation you submit depends on how you make your money! If your tax returns don’t accurately reflect your yearly earnings, we can use other income sources.
How much self-employment history do I need to provide?
At Newfi, borrowers will be asked to provide 2 years of self-employment history to qualify. There may be exceptions available for borrowers with at least 1 year of self-employment history on a case-by-case basis if you have strong job experience, a history of other income earning, etc. Reach out to us for more information.
Can I qualify for a Self-Employed Mortgage using multiple income sources?
Many people buying homes may need to combine sources of income to qualify for a mortgage. Traditionally, this means two or more tax returns. However, self-employed borrowers can qualify for a self-employed mortgage using multiple different sources of income documentation.
Can first time home buyers qualify for a Bank Statement Mortgage?
Yes, self-employed first time home buyers can qualify for a Bank Statement Mortgage. As long as you can submit all the required documentation and meet our specific lender requirements, you can qualify for a self-employed mortgage.
Can I qualify for a traditional mortgage if I'm self-employed?
Yes! The biggest roadblock many self-employed borrowers face when qualifying for a traditional mortgage is income documentation requirements. However, if the borrowers W2 income accurately reflects their yearly earnings and they meet the other lending requirements, self-employed borrowers can qualify for a traditional mortgage.
Are Self Employed Mortgages backed by the government?
Self-Employed Mortgages are Non-QM mortgage options. Non-QM loans are not backed by the government and do not have standardized guidelines. This means that Non-QM lenders, like Newfi, have qualifying requirements that vary depending on the lender you choose.
How can I get a Bank Statement Mortgage?
Self-Employed Mortgages are Non-QM mortgage options. Non-QM loans are not backed by the government and do not have standardized guidelines. This means that Non-QM lenders, like Newfi, have qualifying requirements that vary depending on the lender you choose.
What are rates for Self-Employed borrowers?
How do I apply for a Self Employed Home Loan?
Call us at (888)316-3934 to get in touch with a Newfi Senior Loan Advisor today. Because everyone has their own unique situation, we recommend speaking to a loan advisor about your options as your first step. Fill out the form on this page for a free consultation with one of our licensed loan advisors!
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