Any time you are doing things differently than the majority, you might run into unique obstacles. Many people find this to be true as a self-employed person or business owner when they want to buy a home. For anyone in this situation, we know that purchasing luxury real estate can feel like a daunting task. Traditional mortgage applications often rely heavily on tax returns to verify income, which can be a challenge if you strategically minimize your taxable income.
However, there are ways to buy your dream home without the hassle of navigating tax returns. Here’s how we help self-employed borrowers secure financing for luxury properties.
The Challenge of Traditional Mortgages With Luxury Real Estate
Even if you have excellent income and years of financial stability, a traditional mortgage might just not fit your needs. The challenge of traditional mortgages for self-employed applicants is the approval process. When you are applying for a traditional mortgage, lenders will typically require two years of tax returns to verify your income. This process can be problematic for if you use deductions to reduce your taxable income. While this strategy lowers your tax liability, it also reduces the income you can show on paper—making it harder to qualify for a conventional loan.
The good news? There are alternative financing options that cater to high-net-worth individuals like yourself, including:
- Bank statement loans
- Asset-based loans
- Debt Service Coverage Ratio (DSCR) loans
Bank Statement Loans
One of the best options for most of our self-employed borrowers is a bank statement loan. Instead of relying on tax returns, we use your business or personal bank statements to assess your income. Here’s how it works:
- We typically review 12 to 24 months of bank statements.
- We calculate your income based on deposits rather than taxable income.
- This method provides a more accurate reflection of your cash flow and ability to afford a luxury property.
Our self-employed clients love this process because it allows them to verify their actual income, which is generally much higher than their tax return indicates.
Asset-Based Loans
If you have substantial assets, an asset-based loan may be the perfect solution. With this type of financing, we look at your liquid assets (such as savings accounts, investment portfolios, or retirement funds) instead of income.
The loan amount is determined based on the value of your assets, and you may not need to provide proof of traditional income at all. This option is especially useful for self-employed individuals with significant savings or investment accounts.
Debt Service Coverage Ratio Loans
A DSCR loan is often the ideal fit for investors who want to qualify without their tax returns. This type of mortgage is approved based on the income potential of a rental property, rather than the income of the borrower. We look at the expected rental revenue from a property as the source of income. This can be a powerful tool that allows you to invest in real estate to reach your goals.
Preparing to Apply
With any of these loan types, the same tips apply to help you prepare for application without a tax return as income:
- Boost your credit score in the months leading up to application.
- Gather all your documents and keep them organized. This includes bank statements, asset statements, profit and loss statements, and contracts from clients to verify ongoing income.
- Prepare your down payment. A larger down payment is going to boost your ability to qualify.
The Importance of the Right Lender
The most important factor in this process is working with a lender who understands your situation. Not all lenders specialize in working with self-employed borrowers or luxury properties.
We have become specialized experts in helping our self-employed clients get the financing they need for their real estate goals, and we would love to talk to you about how we can be a part of your home buying team.
Buying luxury real estate as a self-employed borrower may seem complex, but it’s entirely achievable with the right approach even without your tax return. Want to learn more about a bank statement loan or apply for a mortgage as a self-employed borrower? We have years of expertise you can depend on to help you find the right financing fit for you. Contact us any time to get started.
