Working a job that pays hourly, or through contract employment, can sometimes limit your options when it comes to finding a home loan. Fortunately, today’s mortgage marketplace is evolving to meet the needs of today’s diverse workforce.
When you don’t have salaried income, applying for a mortgage will likely involve a few extra steps. Otherwise, you may need to focus on specialized niche lending products that are designed with the 1099 earner, self-employed, hourly, or contract worker in mind.
Here are three popular mortgage options for borrowers without salaried income.
Bank Statement Loans
Bank statement loans use the borrower’s bank statements to determine their qualifications. Instead of having to supply the lender with traditional tax documents, paystubs, etc., the borrower can provide copies of both personal and business bank accounts. These loans may be ideal for the small business owner, investor, or the borrower who simply doesn’t have traditional income documentation.
Although different lenders may have different eligibility and qualifying criteria, Luxury Mortgage allows personal bank statements to be used as follows:
- Most recent 12 or 24 months of personal bank statements and most recent three months of business statements.
- Utilize 100% of deposits into personal accounts as income.
- Deposits must be sourced.
- More than one account can be used.
Business bank statements can be used for documentation in the following manner:
- Most recent 12 or 24 months of business account statements.
- To find dollar amount multiply all eligible deposits by 50% and again by borrower’s ownership percentage in the business.
- Eligible deposits are those that can be sourced as business income.
- More than one account can be used.
Alternative methods to determine dollar amount of eligible deposits include CPA prepared profit and loss statements, CPA letter stating business expense ratio which is used for calculation, or subtracting withdrawals from deposits.
Co-mingled accounts, or when separate accounts are not maintained for personal and business, are considered business accounts for qualification purposes.
Additional qualification factors include credit history and score, a current credit report will be requested and reviewed, and the value of the subject property as documented by an appraisal. For loan amounts greater than $1.5 million two appraisals may be required.
1099 Only Loans
As the name suggests, the 1099 Only mortgage is designed specifically for 1099 earners. If you’re an independent contractor, freelancer, or anyone whose primary source of income is considered 1099 income by the Internal Revenue Service (IRS), this loan product may be a good alternative to traditional home loans.
With the 1099 Only loan from Luxury Mortgage, borrowers who wish to apply for financing can choose to exclusively use their 1099 income for their application. No other income verification is required under this program, making it a relatively fast and simple application and approval process.
Want to know more? Here are a few other benefits of the Simple Access – 1099 Only Program from Luxury Mortgage:
- Loan amounts up to $3M
- Interest-only feature available with 30-year term
- DTI up to 50
- Credit scores as low as 680
- All occupancy types allowed
- 7/1, 10/1 Adjustable Rate Mortgages available
- 15, 30 Fixed Rate Mortgages available
- Multiple financed properties allowed
- Multiple 1099 qualification options
Full Doc Loans
Borrowers without salaried income may also want to consider applying for a full documentation loan (full doc loan). These loans require tax returns, unlike the two loan options mentioned above. However, these loans may offer lower interest rates and more favorable terms, depending on your situation.
As the name implies, a full doc loan will require you to provide full documentation for your income. In other words, you have to be able to prove–on paper–that you earn enough money to qualify you for the loan. That means there will need to be a paper trail, receipts, paystubs, tax returns, CPA documents, etc.
Since every borrower’s scenario is different, there is no one-size-fits-all option for home financing. Keep that in mind when shopping around for a home loan and be sure to work with a lender or broker who understands your budget and long-term homeownership goals.
To start your homeownership journey, connect with one of our mortgage professionals today.
We're dedicated to helping borrowers find the right home loan program for their situation. Contact us today for a free quote and consultation.
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