Success Story: Not From Last Decade
No, this is not a story from 2005.
This home buying story happened quite recently, in fact. Alternate loan programs still exist, and for some home shoppers, they are making the difference between owning and renting.
Combining diligence with a little creativity, owning a home can easily become a reality.
Bank Statement Loan Program Story
It’s a simple unfortunate truth for self-employed home buyers.
When you have hard-to-document income or a lot of write-offs, it can be tougher to qualify for a traditional home loan.
Due to new (circa 2013) rules and other regulatory measures imposed by the Consumer Financial Protection Bureau, it can be more difficult for your non-W2’d wage earner to get a home loan.
The bank statement program allows lenders to make home loans that don’t have to follow the ability-to-repay (ATR) rule.
This option can be ideal for folks that earn seasonal income, are independent contractors, or are self-employed. For these applicants, tax returns are anything but inside-the-box. Yet, these would-be home buyers are much more qualified that salaried employees.
Ricardo was a perfect example.
He had a thriving business as a self-employed construction worker. Just not on paper.
Ricardo had plenty of income each month, but after writing off a significant amount of business expenses, he doesn’t report adequate income to qualify for traditional financing.
Thanks to a “bank statement” program from a lender in his area, all hope was not lost.
The bank statement program doesn’t require tax returns at all, so write-offs become a non-issue.
How Does The Bank Statement Loan Program Work?
Ricardo’s sizeable monthly bank deposits over the past 24 months were sufficient to qualify him for a bank statement loan.
Lenders that offer the program simply average bank deposits over the past 12 to 24 months to arrive at monthly income. For example
- January: $5,250
- February: $4,200
- March: $3,500
- April: $8,400
- May: $9,500
- June: $5,300
The six-month average income in this example is around $6,000 per month. The lender, after viewing a full twelve or twenty-four months, will base its approval on that amount.
The down payment requirements and interest rate were slightly higher than those with traditional mortgage loans.
According to Ricardo, a slightly higher rate and down payment were well worth the tradeoff for owning a home.
Further, he can always come back next year, after reporting more income on his taxes, and refinance into a conventional loan with a lower interest rate.
What Are Today’s Mortgage Rates?
Contrary to popular belief, you don’t always need to provide a huge stack of tax returns to buy a home.
Even if you are someone who doesn’t report a lot of income after write-offs, homeownership may still be within your reach.
Speak with a knowledgeable lender about your situation. You may be pleasantly surprised about the growing number of creative options available to you.