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Mortgage options for self-employed people

Self-employment is more than a trend. It’s a reality for 28% of the US population1, or approximately 44 million individuals, who work for themselves. That number is rising.

Being a small business owner or running a home-based business has its perks. (Casual Friday every day, anyone?) But self-employment does have a less-talked-about downside. It can make the mortgage qualification process tougher to navigate, not just for your clients but for you as a broker as well.

Documentation requirements can leave self-employed home buyers in the cold

Traditionally, home-buyers have had to meet the burden of providing lengthy documentation to prove their income. That includes producing tax returns, pay stubs, W-2s or a stack of bank statements to show the regular arrival of steady income.

For the self-employed person or small business owner, showing proof of consistent income can be one of the biggest hurdles to buying a home. Despite research from the Urban Institute2 suggesting that self-employed households actually outearn salaried households, they come under closer scrutiny from lenders, often to their detriment.

Take the two-year average rule, for instance. A freelancer or business owner who had a down year followed by an outstanding one, or vice versa, could see their mortgage options shrink as their documented two-year average income might not be reflective of their true earning power – thus making mortgage approval challenging.

A changing lending landscape can make qualifying for a mortgage even more difficult for the family business owner or independent contractor. For instance, shifting economic conditions triggered by the coronavirus pandemic have led many lenders to tighten borrowing guidelines3.

All of this adds up to a perfect storm of challenges for self-employed clients and the brokers they work with. Quontic offers innovative mortgage products designed to help them achieve their homeownership dreams.

Non-qualified mortgages offer an entry point to home loans

Non-qualified mortgage (non-QM) loans can be a solution to the income documentation problem for creditworthy small business owners and self-employed individuals who want to buy a home. Instead of W-2s, tax returns or pay stubs, homebuyers can qualify for a mortgage simply by showing their business income on a profit & loss statements. This type of mortgage may be ideal for:
  • – People who’ve been self-employed for more than one year but less than two years
  • – Small business owners or freelancers with uneven revenue
  • – Gig workers or independent contractors with variable income
  • – Someone who’s transitioning from a salaried job to run a family business (provided the business has been in operation for at least two years)
  • – People whose business has had extraordinary planned or unplanned expenses which temporarily reduced their net income
Quontic’s non-QM loans make it easier to qualify for a mortgage based on what’s happening in a person’s financial life today. They’re designed to recognize the unique circumstances that can impact income and earnings when running a business versus working a 9 to 5 job. Quontic’s adaptability can make facilitating home loans for self-employed clients easier.

Matching the right non-QM loan with each client is key

Non-qualified mortgage products are far from equal. When connecting a client with a non-QM or alt doc lender, the onus is on you to find out whether the lender offers loans that are well suited to that particular home buyer’s needs and financial situation. Quontic offers a number of Community Development Loans or alternative documentation mortgage options with features that can’t be found elsewhere. These are carefully tailored to self-employed buyers and other individuals with irregular or harder-to-document income who want a home loan. Those include:
  • – Lite Doc loans (borrower-prepared P&L) for owner-occupied or rental properties
  • – Alt Doc Profit & Loss program
The Quontic Lite Doc loan allows self-employed borrowers to use 12 months’ self-prepared profit and loss statements as proof of income. No tax returns or W-2s are required for loan approval and up to 100% of down payment funds can be gifted. This program does not require the borrower to also provide 12 to 24 months’ bank statements to prove income. This program is open to owner-occupants or investors looking for a loan of up to $2,000,000. Business owners who do not meet the credit score requirement for our Lite Doc loan can use 12 months’ P&L statements to qualify for a home loan through Quontic’s Profit & Loss Loan Program. This program requires that the P&L statements be reviewed by a certified third-party, such as an accountant.

Self-employed borrowers can get a mortgage

Quontic is helping one of the fastest-growing segments of workers in the country blaze a trail to homeownership and investment property ownership. Let your self-employed clients know that it’s time to be optimistic about qualifying for a mortgage. It all starts with knowing what options your self-employed or small business owner home buyers have when it comes to getting a home loan. Contact Quontic today to find out how you can become an approved broker for our range of adaptive mortgage programs.

References:
1 Gig Economy Self Employment Report 2019
2 Continued impact housing crisis self employed households
3 Mortgage lender sentiment survey

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