Mortgage loan programs for unconventional scenarios

If you’re trying to get a home loan to purchase a home, but you’re self-employed, and have some unique sources of income, or don’t show income on tax returns. there are still programs out there.  The following are some examples of non-traditional options that might help you as it relates to successfully getting a mortgage loan to purchase a residential home.

Mortgage lenders want paystub ‘s W-2s and or tax returns when applying for a home loan. These are the typical traditional sources lenders look for in determining how much money they’re going to lend you and what your payment to income ratio is. Being self-employed means having the responsibilities of accounting for employees, overhead, and various forms of expenses, which comes off, gross revenue, resulting in less net income, meaning, paying less taxes. As a result of operating your business, lenders oftentimes take a more stringent approach to self-employed folks who don’t show very much income.

Bank statement loans If you don’t show a whole lot of income on your tax returns, fear not. Some mortgage companies allow you to you provide bank statements, often as little as six months, 12 months, some even two years. A bank statement program will take into consideration your gross deposits, meaning your gross revenue within your business documented with bank statements and use this as a measure of income to help you qualify to purchase a home. Lenders want, but not always at least a 640-credit score and may require more down payment with that type of credit score, but 10% down on such a program with excellent credit is common. These loans will work for a primary home, a secondary home or even a rental property.

Debt service collateralized loans, often dubbed DSCR. These are loans are for rental properties only they ignore bank statements for income and ignore tax returns. The value of such a program is it takes into consideration revenue from the property for investment purposes so for example, let’s say your mortgage payment is $6000 a month. If the rent is $6000 a month, you’re in business. These programs air on the side of a 680-credit score or higher due to the inherent risk of ignoring bank statements, tax returns and typical financial documentation. As a result, these loans tend to be tad bit pricier, but they’re also incredibly flexible as it relates to rents. You usually need to have a ratio of what’s called 1:1 as mentioned above $6000 a month of rent equal to the $6000 a month on the mortgage payment. If the rent is less than the mortgage payment, that’s not automatically a deal-breaker, but it is going to make the loan pricier. The rents can be determined by a current lease agreement or the appraiser doing a rent survey.

Full DOC Let’s say that your income in 2022 was good. The previous years, however, were not so favorable due to various economic conditions as an example. If you’ve been filing self-employed for the most recent last five years, you can potentially get a full documentation loan under Freddie Mac using one year of income tax returns to qualify. The benefit of this is that even if your previous years showed losses if your most recent tax return is profitable and shows income you may  qualify to buy a primary home, a secondary home or a rental property. You would need as little as 5% down for a primary home 20% down at the minimum ideally 25% down for a rental property or for a second home. Guidelines typically allow for 20% down on a rental and 10% down on the secondary home. This being said, due to the current economic climate of interest rates putting an extra 5% down may help avoid a high cost mortgage (mortgage loan over 3% of loan amount in fees).

If your situation is unique and out-of-the-box, it would be well worth your time to talk to a lender, even if you’re not ready to buy a house this year to start doing some forward, income planning and mortgage planning for next year. Working with a good lender who’s experienced can help create a strategy for the long-haul may prove to be an sound family decision to achieve financial success.

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