When you are self-employed or want to invest in real estate, you probably face a dilemma when seeking a mortgage for a purchase or refinance.
Whether it is due to your tax returns, fluctuating income, business cash flow or any other factor, you are starting to feel like none of the regular mortgage guidelines apply to you. Should you take less business deductions and increase your reported income for a couple years in order to qualify for a traditional conventional, jumbo or FHA loan? Or do you have to settle for a lower loan amount because tightening your belt with your tax returns isn’t an option for you? Or do you just put down the cash because no one wants to lend to you?
Perhaps you have already tried some banks and been rejected. Now you are not sure where to turn.
Well, we are here to tell you there are LOAN PROGRAMS DESIGNED SPECIFICALLY FOR PEOPLE LIKE YOU. These programs are highly tailored, but as a group can be referred to as non-qualified mortgage loans.
Non-qualified Mortgage Loans Explained
You might ask questions such as—Is that the same thing as a subprime loan? Is it hard money? Will I be paying a lot in fees and interest? I thought they stopped giving out those loans?
For simplicity’s sake, we can think of non-qualified loans as those not fitting the suggested guidelines written by the CFPB, a government oversight bureau created under the Dodd-Frank Act. If banks follow their guidelines, they receive two benefits: (1) a safe harbor protecting them from being sued by the borrower; and (2) the ability to package and sell their loans to Fannie Mae and Freddie Mac.
Quite simply, these guidelines are written as a protection for the lenders. The CFPB specifically points out that just because a mortgage is non qualified, it doesn’t mean it is bad:
“Even if a loan is not a qualified mortgage, it can still be an appropriate loan.”
In other words, non-qualified loans are any in which the lender sets their own terms and utilizes a separate secondary market that the government does not invest in. These include jumbo loans for higher priced homes.
So how does this apply to the self-employed borrower or investor? Lenders provide a certain type of non-qualified mortgage called stated income loan.
Stated Income Loans are Available for Self-employed Borrowers or Investors
The term “stated income” might have a negative connotation because of their abuse prior to the government reform that tightened lending guidelines. Remember back in the day when banks would lend to pretty much anyone willing to sign on the dotted line?
Well, that is most certainly not the case today. The new and improved stated income loans couldn’t be further from the toxic loans of years past. Lenders still have a duty to make a reasonable and good-faith determination that the borrower will be able to make their payments. And the toxic features such as high prepayment penalty, negative interest or balloon payments are prohibited.
Every lender has their own formula for which loans they feel comfortable giving out. After all, they aren’t able to just unload them like they used to, so they want to protect their own interests and only lend to borrowers who they trust to satisfy their payments.
There is no uniform process. One lender may accept a recent foreclosure while another may not. One lender might require a larger down payment with a certain credit score, while another might be more credit-flexible. Some of the factors utilized are the type of business, length of time self-employed, gross monthly income, bank statements, an investor’s history of experience, assets, and credit.
There are even some banks who provide NO-DOC loans.
The lenders providing these types of programs tend to be smaller banks you will not have heard of that maintains smaller portfolios and a different mix of programs. This brings us to the next point…
Where can I get a Stated Income Loan?
Bottom line, you need to work with an experienced broker specializing in these loans who knows each lender’s guidelines like the back of their hand. There are so many moving parts with these loan scenarios, especially with self-employment and the nuances of real estate investing. There might be 4 or 5 different lenders who may initially consider you, but you may ultimately be determined not to qualify down the road MANY WEEKS later, after you got your hopes up, pulled your credit, and did all the work gathering a ton of documents.
You do not want to go down that arduous road by yourself, or with a loan officer who does not know what they are doing! Trust us, you will NOT be happy running in circles only to get rejected at the end. It takes many years of experience and time building relationships with the banks to be able to do these types of loans. We have a combined 15 years of experience honing our expertise for the most difficult scenarios you can imagine.
HP Mortgage LLC is partnered with EVERY lender out there. With our experience, we can determine within a FIVE MINUTE PHONE CALL which one of our lenders will approve your loan at the LOWEST rate. We can navigate any obstacles such as low credit score, tax return issues, fluctuating income or deposits, high debt-to-income ratios, assets, recent foreclosure, etc. We have seen everything! We will get it done, and will be with you every step of the way.
We have many different programs to work around any roadblocks the non-traditional borrower might face. If you are self-employed, we recommend using bank statement programs. Instead of evaluating tax returns, credit is extended using the gross deposits into your bank. Typically, 50% of your gross deposits can be calculated as qualifying income, but we have programs that can go even higher than 50%! The bank statement underwriting formula puts self-employed borrowers in a much better position to purchase a home.
Are the rates higher on these programs? Typically they are a bit higher because this type of loan is considered a riskier product for the bank, due to the reasons explained earlier. However, the difference in monthly payment is not that much and is a small price to pay for the ability to take your business deductions, build equity by owning a home, and even obtain a cash-out refinance loan to invest more capital into your business for growth and prosperity!
Is there anything else I should know about your company? We pride ourselves on customer service. Our goal is to treat everyone like family, not waste our customers’ time, and always act in the best interest of our client. We will not entice you with teaser rates to get you in the door and there will be no upfront costs or hidden surprises. Please read the testimonials from many of our happy clients who entrusted us with their home. The common theme—we got the loan done, when nobody else could.
Please contact us today to find out what program we have for you!
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