What Documents Do I Need for a Home Loan if I’m Self-Employed?
Saturday, April 27, 2019, 6:00 AM | Leave Comment
When applying for a home loan you know you’ll need certain documents such as bank statements, W-2s, pay stubs, and other proof of income, but what if you are self-employed and can’t necessarily prove your income?
Are you simply out of luck when it comes to home loan or getting a mortgage on a new house? Not at all.
There are bank statement home loans which used to be called stated income loans.
Back in 2006 to 2008, these stated income loans actually got a lot of people into trouble. Subprime mortgages were on the rise and people just had to say they could make the mortgage payment in order to get the loan.
Well, as you probably guessed, their stated income wasn’t exactly accurate and pretty soon they couldn’t afford their mortgage falling into foreclosure or having to short sale the property.
While these subprime mortgage practices are no longer legal, there is a similar type of loan for self-employed individuals.
If you have sporadic income or non-consistent income throughout the month it can be difficult to give a lender your monthly or gross annual income. This is where bank statement loans come into play.
Lenders will take a look at your personal and/or commercial bank statements to see how much money is actually coming into the business. This will show your income in a more solid and accurate way.
However, this doesn’t necessarily account for the money going out. You may receive $100,000 per year but if $50,000 of that goes out in expenses or paychecks, you don’t have $100,000 to pay your mortgage, but rather $50,000.
So, there are other documents needed to apply for a home loan if you’re self-employed.
Here’s what you’ll need to gather:
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Personal bank statements over the last 12 months, which can give lenders an average monthly deposit amount.
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Business bank statements up to 24 months showing an average monthly deposit.
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Profit and loss statements.
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Tax returns (optional)
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Proof of identity.
These are the most common documents requested by lenders for a self-employed home loan, however, there may be additional documents needed on your specific case. Sometimes lenders need additional proof for verifying identity, explaining any large purchases or expenses, any unusual deposits or credit inquiries.
The profit and loss statement is really one of the most prominent documents. Lenders want to know how much you have coming in and how much is going out. However, this doesn’t need to be a complicated document. Simply going over your expenses throughout the last 12 months and giving as close to accurate numbers as possible to how much goes out and advertising, paychecks or subcontractors, office supplies and expenses and how much is actually coming in. This doesn’t need to be an extensive document either. Often times lenders will provide you with a worksheet to fill out and as long as your bank statements match up accurately, this is about all you’ll need.
Additional Resource: The Main Documents Needed to Apply for a Home Loan
If there’s any major payments such as tax payments, large deposits, deposits that do not match with an invoice, or other unusual expenses, income, or deposits, you will probably need to fill out a letter of explanation. This will get attached to your home loan and provided to the underwriter for final approval.
You’d be surprised at how easy it is for well-qualified self-employed individuals to get a loan. But, even the term “well-qualified” is subject to a case-by-case basis. Most of these big statement loans do require a credit score of at least 600 but depending which lender you choose; some may have access to different programs than others, so it definitely is beneficial to shop around.
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Tammy Emineth is a real estate and finance blogger for individuals and real estate brokerages all over the country. As a former agent, Tammy possess inside knowledge and information to bring accuracy and authority to all blog posts.
