Stated income mortgage loans are an ideal solution for small business owners that may otherwise have difficulty qualifying. As a business owner, it is common practice writing off expenses on your tax returns. Things like cell phone payments, car lease payments, and a percentage of your home office are deducted from your gross income and lower your overall tax liability. While this helps business owners to pay less taxes, it hurts them when trying to qualify for a mortgage loan.
How Do You Qualify for a Mortgage Loan?
In order to get approved for a mortgage loan, you need to have enough income to meet the debt to income ratio (DTI) guidelines. Your DTI is calculated by adding up all of your debt payments, including your new mortgage loan, and dividing that number by your total monthly income. Your DTI typically needs to be under 45% while some mortgage lenders require it to be under 35%.
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Why Is It Harder for a Business Owner to Get a Loan?
A small business owner may consider all of the money that comes into the business, after paying employees, his or her money. In this way, they typically want to use all of the company’s income as their income for qualifying purposes. The underwriter will not do that. They will use the salary you paid yourself plus your profit distributions that come from your net (after deductions) income. This is typically much lower than the total income you receive in your bank account.
How Does the Stated Income Loan Program Work?
Instead of using your tax returns to determine how much money you make, we can use your bank statements. This will show the actual amount of money that comes into your account on a monthly basis, and give a more accurate picture of your ability to pay the mortgage loan. Start by gathering up the past 24 months of business bank statements. Make a list of the total deposits for every month, add them up, and divide by 24 for your average monthly income. Call your mortgage banker to discuss the process in more details but for now, this will give you an estimate of what your income really looks like.
How Can a Stated Income Loan Help Me?
By using your real income, you will be able to qualify for a larger loan amount. This means you can purchase the home you really want instead of compromising for something smaller. It can also help you to refinance an existing property.
Stated income loans are not for everyone. If you can qualify for a traditional mortgage loan, using your tax returns, the interest rate will be slightly lower. Stated income loans are ideal for business owners that would not be able to qualify for a traditional loan yet still need to purchase or refinance. The program gives flexibility and options to families that need it. For more information, and to see if you qualify, contact your mortgage lender today.
