• Jason Nichols

Why Don't Self-Employed People Qualify for Traditional Mortgages?

The mortgage industry is fairly complex. On one hand, lenders are in the service industry - it is ultimately their goal to help you finance a home. On the other hand, they are a business that needs to protect their own interests. This means that they can't just approve anyone for a mortgage... In fact, many of the problems that arose during the housing crash stemmed from lack of regulations (and Wall Street habits) that allowed for mortgages to be sold to people without the ability to pay them back! Now, that doesn't mean that self-employed people are incapable of paying back their home loans -far from it! It does mean, however, that when income documentation isn't as straightforward as a standard W2, it makes the loan a bit "riskier" for the lender. To mitigate those risks, lenders approach self-employed and other nontraditional applicants with alternative options.

These alternatives, like bank statement mortgages, SIVA and SISA loans, and so on, achieve the same eventual goal (financing a home purchase), but typically have steeper requirements or additional hoops to jump through. So, to answer the question posed in the title: many self-employed people don't qualify for traditional mortgages because a: lenders are only willing to offer an alternative, or b: the prospective borrower simply doesn't have the required documentation.

Every lender has different products, and those products have different requirements, fees, and so on. Some of these lenders may very well offer traditional mortgage programs to self-employed applicants, but more commonly, such nontraditional workers are better suited for other programs. In many ways, it comes down income documentation. Traditional mortgages tend to focus on W2 income, documented by your employer and presented in an official way. For people with 1099 contract income, tips, investment dividends, and other "less common" forms of income, the documentation tends to be less robust - or at least more complicated. Alternatives to traditional mortgages maybe require tax returns, profit and loss statements, asset verification, and so on. They may also require higher down payments and better credit scores (again, the lender is seeking to minimize their own risk).

If you're self-employed and looking to purchase a home, there are options available! You don't have to assume that you won't be able to get a home loan just because your income is different than most people's. When in doubt, you can always contact lenders to see what programs they have that fit your needs.

It may take a little more effort, and you may have to take steps to get your credit score up or save for a down payment, but traditional mortgages are just one part of the home loan industry. If you don't qualify because of unique financial circumstances, there are other options to help you purchase the home of your dreams!

#bankstatementmortgage #bankstatementhomeloans #selfemployed #selfemployedmortgage #statedincomemortgages

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