July 28, 2023

Mortgages for Self-Employed Borrowers

Self-employed buyers can sometimes find that the road to closing features bumps that W2 earners don’t face. Moreover, there may be some self-employed borrowers who find themself in front of an entire roadblock. That is… if they’re applying for a conventional loan. In this article, we are discussing three alternative mortgages for self-employed borrowers that can be useful when the requirements of a conventional loan are standing in the way between a business owner and their dream home. 

Bank Statement Loans 

Conventional loans depend on two years of federal tax returns to calculate a borrower’s qualifying income. The roadblock that many self-employed borrowers run into when proving actual income is tax write-offs. The more write-offs, the lower your reported income. So, instead, Bank Statement loans help you qualify because they consider the following in qualifying a borrower:

  • Average of 12 to 24 months of deposits
  • Narrative of the business
  • Fixed expenses 

CPA Prepared P&L Loans

While conventional loans use taxable income and bank statement loans use bank statements, there is an option to use the health of the business to qualify. A CPA Prepared P&L loan uses…

  • 12 months of average profit and loss net income
  • Two months of business bank statements
  • This information must be compiled by a certified public accountant

Debt Service Coverage Ratio

If your primary source of income comes through investment properties, you can qualify for a mortgage for your next property based on your cash flow against current debt obligations.

  • Calculated by dividing the property’s gross income by the principal + interest + taxes + insurance + association fees (PITIA)
  • Executed lease agreement or a market rent appraisal form 
  • Property may be held by an individual or an LLC or Corporation 

Turn to UHL

It’s our relationships with specialty investors that allow us to offer loan solutions for every scenario. If you are looking for mortgages for self-employed borrowers, give us a call.

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