Being self-employed means having a lot of freedom, including a flexible work schedule and a favorable work environment. However, your self-employed status seems to be a red flag when you apply for a mortgage. The question is – how can you show traditional pay stubs to obtain a loan? Of course, you cannot show them as a self-employed individual.
The good news is you can use your bank statements as a key to approve a loan application. Bank statement loans in South Carolina have become the best option for entrepreneurs and freelancers. Let us discuss how to qualify for a mortgage without a 9-to-5 paycheck.
Why Do Self-Employed People Find It Challenging to Obtain Traditional Loans?
Many traditional loan providers ask borrowers to show a steady source of income. Thus, for conventional loans, you need to submit:
- W-2s
- Employer letters
- Recent pay stubs
- Tax returns of the last two years
However, being self-employed, you experience fluctuation in your income every month. That is why it is difficult to be eligible for the conventional loans.
Alternative Income Verification Loans – Best for Self-Employed Applicants
Alternative income verification loans are bank statement mortgages, which are a convenient choice for self-employed persons. You will get qualified for the loan based on your bank statements. This type of mortgage is beneficial to business owners and freelance workers, but anyone experiencing complex tax returns can apply for this mortgage.
How Do Bank Statement Loans Work?
You need to show your current bank statements as your income proof. Most lenders ask their borrowers to show the last two years of bank statements. Make sure you have submitted bank statements for both business and personal accounts. This allows lenders to understand your financial status for an informed decision. But, transfers between accounts need to be excluded from the statements.
Eligibility Criteria for Bank Statement Loans in South Carolina
Although lenders’ requirements are not the same, some common eligibility criteria are:
- High credit score – Above 680
- 10-20% down payment
- Debt-to-income ratio – Lower than 50%
- Cash reserves for at least 6 months of loan payments
- Consistent bank deposits for a year
The maximum mortgage amount varies with your income and debt-to-income ratios. Moreover, all lenders have set their own limit for loans. Remember that not every lender provides a bank statement loan because it is a nonqualified mortgage. Thankfully, a broker will help you compare the market and find a strong option.
Aside from bank statements, you’ll likely need to submit other documents like proof of assets and a business license.
How to Increase Your Chance of Bank Statement Loan Approval
- Your bank accounts should have consistent deposits.
- Improve the credit score.
- Lower the debt-to-income ratio.
- Prepare for a large down payment.
These few tips will help you receive approval for bank statement loans in South Carolina.
Summary
Your self-employment status should not hold you back from obtaining a loan. If you have no traditional paperwork to show your income, bank statements can be the perfect alternative.
So, speak to a broker in South Carolina and prepare your documents for the loan application. Your bank deposits will help you with loan approval!