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Self-employed can get seconds and HELOCS with bank statements


By Jeff Lazerson



What I think: Besides hot weather, July will be the month for two hot, new and innovative loan roll-outs: Self-employed borrowers can qualify for second mortgages and HELOC’s (home equity lines of credit) simply by adding up the last 24 months of bank deposits. The new products are for both purchase and cash-out refinancing loans.

The maximum loan amount for both the fixed-rate second (or a second mortgage on a property that already has a mortgage) and HELOCs is a stunning $750,000.

The combined loan-to-value will go all the way up to a very aggressive 80 percent. And there is no cap on the maximum loan amount of the underlying first mortgage.

Just like the current crop of first mortgage bank statement programs that are all the rage, these second-lien programs may be the answer for self-employed borrowers who have been turned down because they either don’t show enough net income (gross revenue less most expenses) on their tax returns or their income is too low when averaging over the most recent two years (which is typical of the way traditional lenders evaluate self-employed borrowers).

When it comes to a cash-out refinance, many folks are sitting on especially low first mortgage interest rates they don’t want to pay-off. They would have to trade up to a higher interest rate by taking out a new first mortgage in today’s higher-rate environment.

So, this may be the cure.

Many self-employed borrowers who previously “full-doc” qualified for their first mortgage, were turned down for second liens because of generally tighter debt-ratio qualifying requirements (total of house payments and other debt divided by monthly averaged taxable income).

Knowing you have consistent deposits over the previous 24 months certainly provides comfort to the bank-statement type lenders that you can meet your financial obligations — regardless of your tax-deductible expenses.

This program will allow middle FICO credit scores as low as 680. The fixed rate amortizes over 30 years with a balloon payment in 10 years.

The HELOC allows for an optional interest-only payment for the first 10 years, amortizing thereafter.

Pricing for these bank-statement programs has not been published as of deadline.

Debt ratios are consumer favorable, especially for a bank-statement program. You can go to a 43 percent debt ratio or as high as a 50 percent debt ratio for very strong candidates.

Keep in mind that you will typically get better pricing if you can document and income-qualify via tax returns.

For a well-qualified full-doc borrower, I found a rate as low as prime minus 0.5 percent or 4.5 percent. And, I’ve found a full-doc HELOC going as high as 95 percent combined loan-to-value for very a well-qualified borrower.



If you have questions or comments, please contact Jeff Lazerson by clicking here. For more great insight make sure to check out Jeff Lazerson’s Mortgage Grader Radio Show on Sundays at 10 am on AM830 KLAA.

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Jeff Lazerson - Mortgage Columnist since 2011