Are you self-employed and looking for a mortgage or you want to refinance an existing one? Many in this situation have found it challenging to secure a loan without the usual proof of income that most lenders require during the mortgage approval process. With these extenuating qualification circumstances, a Non-Qualified Mortgage (Non-QM) loan is certainly an alternative to be optimistic about. However, it’s important to know how to get one first.
In order to process a Non-QM loan, proof of self-employment is still required. This proof can be in the form of a copy of your business license or a letter from your CPA on their letterhead confirming that they handle your business finances and you’ve been self-employed for at least two years.
Showing Your Worth
Not your typical loan (which is known as a qualified mortgage), a Non-QM loan offers an alternative way for a borrower to verify that they will be able to afford their mortgage payments. In lieu of the standard methods of income proof such as tax returns, W-2s or paystubs, this type of loan gives the self-employed borrower a way to show their income, which may be harder to document because it can fluctuate or be in the form of a lump sum, commission or bonuses.
A Non-QM loan factors in the borrower’s credit history and asset statements (which may include a receipt of income from the borrower’s self-owned company in their bank account) to determine whether they can be approved for a Non-QM loan.
Other Forms of Income Verification
A high credit score, a low debt ratio and 6-12 months of available money (what lenders call “reserves”) for mortgage payments are all compensating factors for lenders to do business with an individual wanting a Non-QM loan. It also helps if the borrower has a housing history with no late payments over a few years, as well as no collections or judgments on their credit report.
Self-employed borrowers can appreciate that instead of the usual required documents, a lender like New American Funding can verify self-employed income with the help of bank statements. This program relies on the following:
- Personal or business statements
- 100% of eligible deposits from personal and business accounts
- Profit and Loss statement required for 12 months or previous year and YTD
In addition to bank statements, these types of income verification methods are factored in for Non-QM Loans:
Full Documentation (same as qualified mortgages)
One-Year Tax Return Program
- Personal tax returns for the past year, including all schedules and attachments
- Business tax returns for same year with all schedules
- Signed business profit and loss statement in many cases
Asset Depletion (purchase or rate-and-term refinance only, owner-occupied or second homes)
- 60-day account history required
- 100% of vested retirement for borrowers over 59 ½ years old and 50% of vested retirement assets if borrowers are under 59 ½ years old
- Used 3% rate of return on assets amortized over seven years
You’ve Got Options…
The Non-QM loan can be used for a rate-and-term refinance, a cash-out refinance, and a new home purchase for owner-occupied or second homes.
Give New American Funding a call today to learn more about how a Non-QM loan might be the home financing solution you’ve been looking for at a time you need it the most.