You own your own business and are proud of your success – congratulations! But when it comes time to apply for a mortgage in Florida, you may not be as excited. Since you're not the 'typical W-2 wage earner,' lenders may not be as friendly as you'd hope. Your loan options quickly dwindle, especially if your tax returns don't show very much income. If you're able to convince Uncle Sam that you don't make much money, most lenders may think the same.
Fortunately, that's only for conventional financing. Self-employed borrowers like yourself need subprime or bank statement loans. In other words, loans that 'think outside the box' and don't hold you to such strict standards. Alternative loan options help borrowers like yourself buy their dream home even if you can't verify your income the traditional way.
A mortgage is a mortgage no matter where you work. Lenders all have the same bottom line. They need to know you can afford the loan beyond a reasonable doubt. Conventional and government-backed loans, however, have stricter requirements. You must prove your income the traditional way, which means pay stubs, W-2s, and/or tax returns. If you're self-employed though, you may not show the same income as a W-2 earner. The US tax code allows business owners to write off a significant portion of their earnings. This is great for your tax liability but not so great when lenders look at your taxes and figure your income. It makes sense that self-employed borrowers write off as many expenses as they can. Who wants to pay more taxes than necessary? It makes good business sense, but it could pose a problem when you apply for a mortgage.
Here's the problem. Lenders use the same adjusted gross income that you claim on your taxes. If you own a business and write off a good portion of your income, you look 'broke' even if that's not the case. Conventional, FHA, USDA, and VA loan lenders must verify your income using your tax returns. If your tax returns show little income, guess what? In the eyes of the lender, you make little income. That leaves you without mortgage approval. With today's regulations, lenders must verify beyond a reasonable doubt that you can afford the loan. This doesn't give conventional or government-backed lenders the ability to accept bank statements or other income documentation to prove you can afford the loan. Lenders have specific debt-to-income ratios you must meet to qualify for their loans. In addition, you must meet their income verification guidelines. This includes providing your tax returns to verify your employment.
Even if you meet the Fannie Mae or Freddie Mac debt-to-income ratio guidelines, you may be on the hook for a higher interest rate than you anticipated. Fannie Mae and Freddie Mac normally have loan level price adjustments for certain factors that make a loan 'risky.' One of the largest factors is self-employment as neither entity views self-employment as 'safe.' But in 2021, it will get even more expensive to secure Fannie Mae and Freddie Mac Conventional loans because both are implementing a refinance price level adjustment of 50 basis points (0.5%). This is in addition to all other loan level price adjustments conventional loans are subjected to for self-employed borrowers.
At this point, it doesn't sound promising for self-employed borrowers, right? You'll either have a hard time qualifying with your 'lower income' because of your tax write-offs or you'll pay a much higher rate than anticipated because of the risk your loan poses. If you want a mortgage in Tampa that doesn't penalize you and makes it easy to qualify as a self-employed borrower, consider P&L or bank statement loans. They are the perfect alternative to a traditional mortgage in Tampa as they don't focus on your tax returns, but allow other methods of income verification.
Mortgage borrowers looking for a subprime loan can apply for the P&L loan which is one of the easiest loans for self-employed borrowers to use. Rather than using your tax returns, you can qualify with the last two years' Profit & Loss statements prepared by your accountant. The P&L tells us how much money you bring in and what you can afford. We compare your income to your current debts as reported on your credit report and your credit score.
The parameters for a P&L loan are simple:
If you have only owned your business for 1 year, that's okay too. We can use a 1-year Profit & Loss statement along with proof that you have experience in the same industry before opening the business. We need this to prove that you have what it takes to succeed in the business. For example, if you worked as a teacher and then opened a real estate firm the next year, you don't have the experience needed to prove you can succeed.
Bank statement loans are similar to P&L loans because you don't need tax returns to verify your income. Rather than use tax returns or Profit & Loss Statements, we use the income passing through your bank statements. We can use the deposits in your bank account to get a good handle on your income. This is often the best indication of your income as we see the actual deposits coming into your account.
Along with your bank statements showing enough income to cover the mortgage and your debts, you'll need the following to qualify for a bank statement mortgage in Tampa:
Qualifying for unconventional loans is much easier than qualifying for conventional loans for one reason: there aren't any government agencies to answer to. We make our own guidelines and they are very flexible for self-employed borrowers like yourself.
We take pride in helping self-employed borrowers, allowing them to buy their dream home without the stress of skipping tax deductions just to increase their adjusted gross income.
Of course, like any loan, it helps if you have compensating factors to make up for the loan's riskiness. We look at each loan on a loan-by-loan basis, but overall, any of the following you have will help your case including:
Our unconventional loans have friendly terms, making it easy to choose the loan that's right for you. We keep it simple for self-employed borrowers to get the loan they need with terms that include:
If you're self-employed, don't delay buying your dream home any longer. We don't require tax returns which means you don't have to give up your valuable tax write-offs just to get a mortgage. We make it easy to buy your home as soon as possible with just your bank statements or Profit & Loss statements.
We'd love to help you choose the loan that works the best for your unique circumstances. Contact us today to learn more about how we can help you get the funding you need to buy your dream home!