Let’s clarify one thing right off the bat: Bank Statement Mortgages are not hard money loans. They’re government regulated and 30-year fixed mortgages—no balloon payments or negative amortization and primary / 2nd homes have no prepayment penalties.
Whether self-employed as a sole proprietor, partnership, LLC, S or C Corp, or a contractor / 1099, applying for a mortgage can be a nightmare. Lenders want 1-2 years tax returns, P&Ls, K-1s…almost everything but the kitchen sink. And the typical result? Significantly reduced mortgage eligibility or even a flat-out denial. Why? Because the IRS and mortgage industry don’t talk to each other about common sense approaches for self-employed (or 1099) borrowers.
What if a business owner reinvested savings into their business—surely their qualifying income isn’t reduced for that “expense”, right? Wrong. Made $200k last year, saved $100k, then put it back in your business? That’s normally going to be a dollar-for-dollar reduction in income eligibility. What if your accountant is doing their job and finding every single expense to write-off, reducing your tax liability—maybe even finding enough to cut reportable income down to $0 or a loss—yup, you guessed it: this may reduce your mortgage qualifying capability.
What if last year had more write-offs or wasn’t quite as high vs 2 years ago? If the lender wants 2-years of returns, then there’s a good chance they’ll call it declining income and give problems qualifying.
Whether your accountant is brilliant, or you’re growing your business with savings then writing off the reinvestment (aka expenses), or have had fluctuations year-over-year on income, or are a newer business still taking advantage of start-up costs, or a million other reasons why tax returns can cancel mortgage qualifying, Bank Statement Mortgages may be the solution to mortgage qualifying.
Bank Statement Mortgages don’t require tax returns or IRS communication. Lenders typically review the last 12-months of bank statements (either business or personal) then reduce the gross eligible deposits by an expense ratio to account for business expenses. That’s it! If you’re a 1099 worker then it’s simply last year’s 1099s + YTD bank statements—done! No more multiple years of taxes, P&Ls, Schedule A/B/C/D/X/Y/Z.