How Do You Get A Mortgage If You're An Independent Contractor?
Posted on: 3 May 2023
One part of the process of getting a mortgage is to list your employer and how much money you make. However, that is not always easy for some people to do. If you are an independent contractor or freelancer, your income may come in at various times from multiple employers. This can leave you wondering how you can even get a mortgage if you do not have a consistent source of income. That's why some lenders offer bank statement mortgages, which evaluate your income in a different way. Here is what you need to know about this different type of approval process.
What Is A Bank Statement Mortgage?
As the name implies, a bank statement mortgage works by looking at your bank statements. You would submit the bank statements for the account in which you deposit all of your income, so your lender can evaluate how much money you actually make during any given period of time. You may be requested to submit bank statements for only the past few months if your income is somewhat consistent, but may need to submit more if you have not had recent deposits.
Why Not Submit A Tax Return Instead?
The problem with a tank return is that it doesn't show the income that you receive on a monthly basis. It just shows the year as a whole, which doesn't give the lender a full picture of how much money you make each month. The lender wants to make sure that you can afford your mortgage every month, and long stretches without income may be a problem for them.
In addition, tax forms also do not paint the full picture of your income, since a person's taxable income would be after the write-offs they take as part of being an independent contractor. The bank statements show the total income before write-offs.
Are There Limits To Bank Statement Mortgage?
Unfortunately, bank statement mortgages are considered non-qualified (non-QM) mortgages. This means that they cannot be sold to the government by the lender, and the lender takes on the responsibility for the entire loan. For this reason, lenders may place more limits on the type of loan that you can get. For example, the lender may only offer a 30-year mortgage to ensure that mortgage payments stay low and affordable.
Reach out to a local mortgage lender such as NewFi Lending for more info about bank statement mortgages.
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