If a bank statement loan program isn’t ideal for your situation, there are other options to consider. Below is a list of alternative loan programs for self-employed borrowers:
1099 Loan Program
This type of loan program allows you to use 1099 forms in lieu of traditional loan documents. A 1099 is a tax form that shows that you received money from an entity that is not your employer. This could be a company that you are doing freelance work for, your bank showing that you earned interest on a savings account or the company managing your retirement funds. Depending on the lender, you’ll need to show one or two years of 1099 forms and also provide bank statements to show year-to-date earnings. These loan programs will also typically let you use income that comes from sources other than your self-employment.
Verification of Employment (VOE) Program
A verification of employment or VOE loan, is exactly as it sounds. The lender will verify your employment as part of the loan process. While you don’t need to provide the traditional documentation (tax returns, 4506-T, W-2s) you will be required to document that you have been with the same employer for the last two years. A lender will usually verify this information through a phone call, request a letter from the employer or both. They will also perform their due diligence to ensure that it is a legitimate business. You will be required to provide bank statements that demonstrate that at least 65% of your income has come from this employer.
CPA Prepared Profit and Loss (P&L) Statement Program
This program looks at profit and loss statements prepared by a certified public accountant (CPA) or other certified agent. The CPA must attest that they have filed and prepared these documents for the last 12 or 24 months, thereby vouching for the legitimacy of the information provided in your documentation. You may also be asked to provide the last two months of your business bank statements.
Asset Utilization Program
An asset utilization program is ideal for individuals who have no income or do not have enough income from self-employment to qualify for a mortgage loan. This loan program allows you to use assets, such as property, to qualify for a home loan. Of course there are stringent requirements for what qualifies as eligible assets. The assets being utilized must account for at least 150% of the loan balance. This percentage also takes into account and subtracts the down payment, closing costs and reserves from the overall value of the assets. You may also be asked to provide a minimum of three months of bank statements. It’s important to note that many lenders will not consider a debt-to-income ratio that is higher than 50% for this loan type.
Debt-Service Coverage Ration (DSCR) Program
DSCR programs are meant for borrowers who are looking to purchase or refinance an investment property. This type of loan program looks at the borrower’s ability to cover their debt service (the principal and interest of the mortgage) with income from renting or leasing out the property.
DSCR = Net Operating Income / Annual Debt Service
A DSCR of 1.0 is considered to be the breakeven point, so lenders often look for a DSCR of 1.20 or higher. If you are considering an investment property, it’s important to work with a lender who offers a DSCR program so that they can provide the proper DSCR calculation.
With so many loan options available, it’s important to work with a lender who can find the program that works best for your situation. Complete our pre-qualification form and let us find the lender that best matches your needs.