Once upon a time, most American home buyers had regular jobs with regular companies that paid them every week or two weeks with regular paychecks. Not anymore. Over the past 15 – 20 years, America’s workforce and employment models have undergone significant change.
Today, millions of people across every conceivable industry work for themselves as self-employed professionals, contract workers, entrepreneurs and small business owners. While the reasons for going out on their own vary significantly, they have one thing in common: most are unable to qualify for a traditional mortgage.
The federal mortgage apparatus — Fannie Mae and Freddie Mac (the Agencies) and FHA — fuels the health and well-being of the U.S. mortgage industry by ensuring the flow of funding to lenders. When lenders originate mortgages, Fannie, Freddie or FHA buys or guarantees them. The loans are then securitized and sold to investors.
To meet more restrictive underwriting criteria applicable to the Agencies, Freddie and Fannie place stricter requirements on the borrower’s loan submission. One such requirement is borrowers must produce an employer issued W2 tax form or federal tax returns for verifying income. This is a problem if you’re self-employed. No W2 and therefore no qualifying for a traditional loan.
In and around 2012, a new type of mortgage provider emerged offering Non-Agency loans: loans originated outside the government’s mortgage framework that aren’t backed by Freddie Mac, Fannie Mae or FHA. Deephaven Mortgage was an early pioneer in Non-Agency loans (also called Non-QM loans, QM standing for qualified mortgage). While Deephaven offers several different loan programs, one of the most popular is its Bank Statement loans. These loans use a borrowers’ business or personal bank account statements instead of a W2 to validate the borrower’s income and determine their ability to repay the mortgage. A Bank Statement loan can be used to obtain a primary residence, second home, investment property, or any type of loan secured by a residential real estate asset, including a refinance.
By reviewing both the type of small business and the flow of funds into and out of the borrower’s bank account over a set period of time, typically 12 to 24 months, lenders can determine: a) the borrower’s ability to repay the loan and b) the appropriate terms of the loan including overall loan amount, loan-to-value ratio, the amount of the down payment, and any cash reserves requirement.
How does a bank statement loan application process work? It’s pretty straightforward. The loan officer or broker helping the borrower with the mortgage uploads the 12-24 months of borrower bank statements to the lender’s loan processing system. The lender’s underwriters then use the bank statements to determine the borrower’s regular net income and whether or not it is adequate to support the loan. Underwriters of bank statement mortgages may adjust the terms of the loan based on the borrower’s income, debt obligations such as student loans, and FICO score.
It’s also important to note that bank statement programs may differ from one Non-Agency provider to the next. For the most part, maximum loan amounts, loan-to-value ratios and FICO ranges are generally consistent across lenders. So are the products. Expanded-Prime is for borrowers just one level below prime and Non-Prime is for borrowers with either a limited credit history or who are rebuilding their credit. One major difference among Non-Agency mortgage providers lies in who performs the underwriting. Mortgage companies such as Deephaven Mortgage have their own in-house underwriting professionals and are therefore more flexible when it comes to “common sense” decisions or exceptions to programs that may help borrowers qualify for their loan.
Another difference is the application experience itself. Loan officers offering bank statement mortgages must collect the bank statements from their customer and then comb through each one, itemizing in detail the deposits and payments to get to a reliable income amount. With Deephaven Mortgage, all a loan officer has to do is upload the bank statements to an online Bank Statement Analysis tool that automatically calculates the borrower’s regular cash flow and income. This saves the loan officer hours of painstaking work and helps expedite the process of getting from application to underwriting.
That’s it. Now you have a basic understanding of bank statement mortgage programs and how Deephaven is committed to supporting your homeownership dreams with innovative programs and great service. If you’re one of the millions of Americans who doesn’t receive a W2 and wants to get started on buying a new home (or refinancing the one you’re in now), reach out to a loan officer at your local independent mortgage company or bank and ask if they provide Non-Agency loans. They’ll know what you’re talking about. And now, so will you.