How to Get a Home Loan When You Don’t Have a W2

In today’s economy, side hustles and gigs have become popular – so popular in fact that this is how some people are making a living. Many people are also starting their own businesses. However, this poses the issue of not having access to a conventional W2. Getting a home loan without a W2 can be a hassle. When applying for a mortgage, most banks want to see a W2, so if you do not have one, you might wonder what you can do to qualify for a home loan.

This article will cover some of your options.

No W2 Because You are Self-Employed

If you receive self-employment income, then you will not receive a W2. This also applies to contractors that receive a Form 1099 instead of a W2. Banks do not typically like loaning money to people that are self-employed because their self-employment income can fluctuate too much, and there is a possibility of defaulting on the loan. There’s a possibility of higher interest rates and a higher down payment if you are self-employed.

There are still a few options for qualifying for a loan if this is case. We’re going to go over a few of them.

Submit All Your Business Documents

This can be a great option for getting a home loan because it is considered full documentation. The bank will know your income and know a lot about your business, which means that they have a better idea of the likelihood that you can pay off a loan.

You can expect to submit tax returns, a business license, profit and loss statements, balance sheets, receivables, and client references. Basically, the bank just wants to see that you have an actual business that generates the amount of income that you claim.

Banks usually like this documentation and may extend you a home loan at a lower interest rate and require a lower down payment if you have the necessary income, credit score, and debt-to-income ratio. However, keep in mind that if your business doesn’t generate enough profit, this may not help you as much.

Stated Income/Stated Asset Mortgage (SISA)

The bank relies on exactly what you tell them your income is and they don’t always take steps to verify it. Even if they don’t verify your income, they still might want to verify your income source and any investments that earn you money. Furthermore, sometimes they want to verify your taxable income. Once your income is stated, the lender comes up with a debt-to-income ratio for you and uses that to decide whether or not you qualify for the mortgage.

No Documentation Loan

The other option is to get a no documentation loan, which means that the bank will not verify any information. People will often use this if their business makes little to no money or if their income, and assets are difficult to verify. Many self-employed people will have a low profit because they write off many of their expenses to lower their tax burden. However, it also lowers their income, which can make applying for a loan difficult. Basically, with a no documentation loan, the applicant signs paperwork for a home loan stating that they can pay it off.

No documentation and SISA loans usually have a higher interest rate than a normal W2 loan. Again, this makes sense because these loans require little to no verification from the bank. However, they are still considered less risky for the bank than a subprime loan, which means that the interest rate can be lower for low documentation or SISA loan.

Overall, these are three options for getting a home loan without a W2. Ideally, the best option is to verify your income. However, this option might not work if your profit is too low or if you do not have an established business. If this is the case, your other options would be one of the loan types that require less documentation. You should always start with the maximum number of documents that you think are necessary to qualify. More documents can mean a lower interest rate, which can save you thousands over the life of the loan.

Don’t Forget About Your Credit

Your income and debt-to-income ratio are not the only things that you need to qualify for a home loan. Regardless of your employment, if you have any type of credit history, you should have a credit score. This is another factor that impacts your ability to qualify for a mortgage. Even if you can’t verify your income, having a good credit score can still play in important part in qualifying, getting a lower interest rate, and being asked to make a lower down payment.

Final Thoughts

Overall, not having a W2 is not a reason to panic about getting a home loan. It might require some more work and extra steps, but most people without a W2 can still qualify for a loan. The specifics of the loan depend on a lot of factors, and the only way to know for certain is to discuss this with the loan officer. They will have the resources to guide you through the process and get you qualified for a loan. Lastly, if you want to buy a home and want to work on repairing your credit, give our credit experts a call today for a free credit evaluation.

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