Self-Employed and Wanting to Qualify to Purchase a Home Full Doc?

Tax time is coming up! For those of us who like to wait, there is still time before the tax filing deadline. It is a good opportunity to talk about bank statement loans.

I hear this all the time: clients come to me, they are self-employed, and they keep getting told that they don’t qualify for a full-documentation loan with their tax returns because they have an aggressive tax plan. They are doing a smart thing with their tax strategy.

So, the backup option is to use bank statement programs. These loans come at a higher rate, but why wouldn’t people do that?

Comparing a Full Doc vs Bank Statement Loan

I looked at these numbers again, looking at this scenario: a really good credit score, 25% down, and a $1.5 million purchase. I compared the full doc payment with a bank statement loan. The rate is roughly half a percent difference between these two options. Which was good to see because half a percent is closer than what we’ve seen historically.

But also, the half a point is less than $400 per month difference in the payment. Yes, your payment will be higher. But I also looked at the numbers based on the amount of money the buyer would need to make to qualify both the full doc loan, as well as the amount of taxes they would pay.

They would end up paying around $60k in state income tax to qualify for that full-doc loan. Look at $60k for one year of taxes. So, the question is where the break-even point is if you decide to pay the extra $400 – which is about 8 – 10 years out. Yes, you are going to pay a little more every month, but you also save a lot on taxes.

Let’s Look at Your Situation

Of course, every situation is different, and these numbers might not line up with your circumstances. But these numbers can scale along with your income and the cost of the home you want to buy.

It’s so important to consider: maybe it makes sense to look at a bank statement program. Or, it might make sense to pay the taxes, set money aside, and buy 2 years down the road. It really depends on your unique situation.

I’m here to look at the numbers with you. Let’s see what it looks like for your own circumstances. Reach out any time so that we can have this conversation to see how it makes good financial sense for you.