Mortgages for Small Business Owners

Are you a business owner in the Tampa Bay area looking for a self-employed mortgage loan? Then you’ve come to the right place! There are several options for business owners so let’s review some of them now so that you can find a great rate on a self-employed mortgage loan.

Roadblocks with Mortgages for Business Owners

There are a few different options for business owners. But let’s start by talking about some of the problems business owners run into when they are trying to quality for a loan.

The first is that business owners sometimes show an income that is not reflective of their actual earnings. What I mean is that their tax return can show a much lower amount than they earned.

After all, business owners are always looking for ways to cut down on their taxes. But this can hurt their actual income when it comes to qualifying for a loan. Some business owners are fortunate enough to show enough income on their taxes to qualify. If so, then great! But for many individuals looking for a self-employed mortgage loan, their tax returns will cause them all kinds of problems.

This can all be quite frustrating!

What Can be Done to Meet this Challenge?

The other option is to venture outside of conventional loans. Non-qualified loans are one of those options. It’s a loan that’s qualified using bank statements rather than tax returns. The lender calculates the income based on a bank statement, which works out favorably for business owners who might not qualify for a conventional loan.

They do have a few other strict requirements though. The lender takes a close look at your credit score. These loans also require a down payment. Furthermore, bank statement loans are designed for business owners so in order to qualify, you cannot have received any W2 income. All income must be strictly business income.

Furthermore, the applicant must have been in business for at least two years in order to qualify. Since the lender is using bank statements to qualify you, they need one to two years of statements that show deposits, withdrawals, and balances. But showing business income for longer might get you a better interest rate.

How is Income Calculated with a Bank Statement Loan?

In most cases, lenders look at your last 12 months and compare them to the last 24 months. There are different ways to calculate this but the most common method is to average the income over a 24 month period.

Depending on the lender, the credit score requirement will also vary but 660 seems to be the absolute minimum that’s accepted. But higher credit scores will lead to lower interest rates.

Now let’s move onto the down payment. Most lenders look for a minimum down payment of 10% on a refinance loan-to-value. This isn’t too difficult to achieve given the rising property values.

Debt-to-income ratio is another important consideration. The maximum seems to be around 50 but this also depends on the lender.

Loan limits are another consideration. The limit of loans for business owners again varies depending on the lender and the individual’s business income. Most loan programs go up to 3 million dollars but it is greatly dependent on the income.

With a conventional loan, if you put money down or are refinancing the property, there won’t be a mortgage insurance requirement. With bank statement loans, there are never mortgage insurance requirements. Even if you only put the minimum 10% down and have a 90-value mortgage, you won’t have to get mortgage insurance.

Final Thoughts

You can do a bank statement loan on a primary residence, secondary home, or an investment property so it really opens up your options. Generally speaking, one to four unit properties will qualify. If you want more information on getting a self-employment mortgage loan or are looking for properties in the Tampa Bay area, then contact me.