Jumbo Loan Options for Self-Employed Borrowers: A Guide

Self-employed borrowers face unique challenges when it comes to getting approved for a home loan, especially if they're looking to secure financing for a significant amount.

With so many lenders and different variations of jumbo loans available, it's difficult to know which ones will work best for your personal needs. Worry not!

In this blog post, we'll give you an inside look at jumbo loan options available in today's market and cover common requirements you may encounter for each one. Because underwriting guidelines vary by lender and can change over time, treat the figures below as general benchmarks, not guarantees, and confirm current terms directly with a lender.

Luckily for you, there are plenty of options available that may fit your unique needs, so let's dive in.

1099 Only Mortgage Loan

If your income structure makes it impossible for you to provide proof of income via tax documents or other traditional forms of documentation, a 1099-only loan can be worth exploring.

This type of loan is designed for self-employed individuals or independent contractors who receive 1099s rather than W-2s. Lenders assess income based on 1099s rather than tax returns for this loan.

Property owners and investors may be able to apply for 1099 loans to purchase, refinance, or invest in properties, with maximum loan amounts set by individual lenders.

Many lenders offer this financing option for self-employed borrowers, including some traditional lenders with special programs or underwriting guidelines.

Requirements

Requirements for a 1099-only loan vary by lender and loan product. Generally speaking, lenders may look for:

• Proof of Income: 6 months to 2 years' worth of 1099s
• Credit Score: A minimum score, commonly in the low 600s, though this varies by lender
• Debt-to-Income Ratio (DTI): Lenders set their own maximum, often in the 45 to 50% range
• Down Payment: Often around 10%, depending on the lender
• Private Mortgage Insurance: Depends on the lender, but it's not always required

Jumbo Construction Loan

For self-employed individuals who want to construct a new home or renovate existing properties, a jumbo construction loan is worth considering.

These loans offer borrowers flexibility when it comes to funding their projects, as they typically allow for a variety of payment and loan term options.

Borrowers can pay the loan in full once construction is completed or roll their loan into a traditional mortgage.

To obtain a jumbo construction loan, lenders will usually require a detailed construction plan and budget, as well as a down payment and collateral.

Requirements

Lenders tend to look for similar qualification criteria, such as:

• Proof of Income: Two years' worth of tax returns, W2, or bank statements
• Credit Score: A minimum score, commonly in the low 600s
• Debt-to-Income Ratio (DTI): Lenders set their own maximum, often in the 45 to 50% range
• Down Payment: Varies by lender, but often higher than for a standard purchase loan
• Construction Plan: Must provide a detailed construction plan, budget, and contractor during application
• Private Mortgage Insurance: Depends on the lender and how much money is put down

Bank Statement Loan

A bank statement loan may be worth exploring for self-employed borrowers who have difficulty documenting their income on a traditional basis, especially if they receive a large amount of cash or have fluctuating or inconsistent income streams.

Bank statement loans let self-employed people qualify for a home loan based on their bank statements instead of traditional income documentation like tax returns.

Here's how it works: borrowers typically provide personal or business bank statements for a specific period of time, often the past 12 to 24 months.

The lender then assesses cash flow and how consistently income has been generated. This helps them decide whether you may qualify for a loan and how much they're willing to lend.

Requirements

Requirements for bank statement loans vary, but commonly include:

• Proof of Income: 12 to 24 months' worth of bank statements
• Credit Score: A minimum score, commonly in the low 600s
• Debt-to-Income Ratio (DTI): Lenders set their own maximum, often in the 45 to 50% range
• Down Payment: Typically ranges from around 10% to 20%
• Profit and Loss Statements: Many lenders require borrowers to prepare a profit and loss statement
• Private Mortgage Insurance: Most lenders require this if the down payment is less than 20%

Asset-Depletion Loan

Self-employed individuals or retirees with substantial assets available but not a high enough qualifying income may benefit from an asset-depletion loan.

An asset-depletion loan is a type of non-QM mortgage loan that allows borrowers to leverage their assets to help qualify for financing, offering an alternative to traditional income-based mortgages.

These assets can include:

• Stocks
• Savings accounts
• Investment portfolios
• Retirement accounts

Lenders look at a borrower's total qualifying assets and use this to calculate a supportable loan amount. That figure is then divided by a set number of months or years, resulting in a base figure used toward qualifying income.

Requirements

Asset depletion guidelines differ by lender. Common criteria borrowers may need to meet include:

• Proof of Income: Borrowers use their assets to qualify, and lenders typically require asset value well above the loan amount requested
• Credit Score: Lenders often require a higher minimum score than for standard programs
• Debt-to-Income Ratio (DTI): Lenders set their own maximum, often in the 45 to 50% range
• Down Payment: Often 20% or more
• Private Mortgage Insurance: Check with your lender, but it's often not required

Note: Rules for using retirement funds toward qualification vary by lender and loan product, so confirm specifics with your lender.

Investor Cash Flow / DSCR Loan

These loans are best suited for real estate investors seeking to purchase and rehab properties faster, improve cash flow, expand their portfolios, or acquire new properties.

Although some lenders consider these loans to be separate products, both are designed to allow borrowers to qualify for a mortgage based on property cash flow rather than personal income.

The loan works by allowing the borrower to leverage the income potential of a rental property, or an existing portfolio, without having to use personal income or tax returns to qualify for the mortgage.

These loans can be used for various purposes, including purchasing new rental properties, refinancing existing ones, consolidating debt, or even buying a home.

Requirements

To be eligible for these loans, borrowers must have a property in mind and typically meet criteria such as:

• Proof of Income: The property's projected or actual rental income serves as the qualifying income source
• Credit Score: Lenders commonly look for a higher minimum score than for standard owner-occupied programs
• Debt-to-Income Ratio (DTI): Lenders set their own maximum, often in the 45 to 50% range
• Down Payment: Often 20% or more
• Private Mortgage Insurance: Your lender may require it, but it's often not
• DSCR: Lenders set a minimum debt service coverage ratio, which varies by program

Modern Day Lending Has Jumbo Loan Options For All Your Needs

At Modern Day Lending, we understand that taking out a loan can be stressful, especially for self-employed borrowers. That's why we do everything in our power to make the process easy and hassle-free.

Our experienced professionals prioritize customer service and satisfaction, working to match you with jumbo loan options tailored to your needs.

We understand that jumbo loans require a unique approach due to the large amounts of money involved. That's why we take the time to listen to your financial goals, review your credit profile, and discuss loan products that may fit your situation.

Here's what you'll typically need to get started with our jumbo loan process:

• Proof of Income: This varies depending on the product, but we typically need tax returns, W2s, bank statements, or 1099s.
• Credit Score: Minimum score requirements vary by loan product; contact us for current guidelines.
• Debt-to-Income Ratio (DTI): DTI limits vary by loan product and borrower profile.
• Down Payment: We offer a range of down payment options depending on the program.

Reach out to learn more about jumbo loan options for your situation.

Contact us to learn more about our loan programs and current terms!