Loan options available for self-employed borrowers to invest in properties

Purchasing an investment property as a self-employed borrower is much more simple now than in the past. Two new loan programs have been designed to fill the need for financing for borrowers who are self-employed.

A lot of entrepreneurs make good gross income, but when all of the expenses are taken against it, the bottom-line net profit isn’t enough income to qualify for a mortgage. However, these two loan programs base the qualification on bank statement income or proposed rental income.

With the bank statement loan, the deposits to the business checking account over a period of 12 or 24 months are totaled, and this figure is divided by 12 or 24 months. Then an expense factor of 50% is used to arrive at the monthly income that can be used for qualifying.

If the business is a service-type business or other that would not have a lot of expenses, a CPA letter can be provided to state that the expense factor is lower, to 40%, 30% or 20%. This gives a higher amount of income to use.

The normal requirement of providing tax returns is not needed, as the income is solely based on the bank deposits the company has made over the last year or two.

The other loan program that is becoming very popular is the debt service coverage ratio. This loan allows the property itself to qualify for the loan.

The proposed housing payment should be no more than the anticipated monthly rental income. Most lenders will allow this 1:1 ratio but there are others that require 1.25% or as low as .70%.

These DSCR loans are not limited to self-employed borrowers. W-2 employees can also obtain this type of loan. No W-2s, pay stubs or tax returns are needed.

Both of these loans offer a much easier, smoother process than a traditional loan. Some lenders allow a borrower to have up to 20 financed properties.

If you’ve been thinking about jumping into purchasing rental properties, give these two options a second glance.