Looking for advice before we either jump this ship, go for it or look elsewhere. We are looking for a loan pre-approval to get a house built in a community. We are Self employed and must use Bank Statements for actual income. Sadly it seems to be a drawback and common problem for self-employed business owners no matter how much you make.
Going by a score of 667 plus Bank statements and starting out with a pre-approval letter for the contractor....our lender is offering a 7% rate. That seems very high to me and at the top tier. My score isn't that bad so is it the bank statements making it a top tier rate or is the lender just trying to get all they can out of us? I am not sure if I should continue shopping or just go for it for now but keep in mind this pre approval is only for 90 days I think then they have to pre-approve again and again until the house is done.
In the mean time my score will hopefully imporove and at the final closing I am hoping the 7% will be less then the pre-approval. If not we will have to refinance when my score is better but will that make any difference since we will still need to use bank statements to refinance.
I am not sure if the lender is just taking advantage of us or should we keep shopping? Or should we not worry about it at this point since the rate will hopefully change for the better after the house is built.
We need to put down a $12000 Deposit to the builder, the builder says if for some reason we don't get approved after the house is built we can get our deposit back but the scary thing is what if the bank comes back with a higher rate (or a good thing a lower rate) or some crazy outlandish criteria and have to turn it down because it will put us at risk then we won't get our deposit back because we will turn it down.
PS. We don't qualify for FHA becuase the house is much more then 350k
Any advice would be appreciated.
Self Employed here.
Its a combination of your score and the bank statements. Bank statement mortgages are considered non traditional so the rates will be higher. Is there any reason you are not using your tax returns? If you can use your tax returns you will get a traditional rate. If you can’t I understand. I take every write off possible too but the trade off is if you need a mortgage it can get expensive. I had another self employed friend use bank statements and then just refinanced in a year. No one knows where rates will be in a year but it’s something to consider.
Remember you can rate shop in a 14 day period and it’s the same hit to your score. Also, see what you can do about your score. Drop your utilization or address anything else on your report you can.
Thank you! That's good advice. We will shop the rates since it can't do anymore damage to the score and then decided rather to go for it. We plan to input less business write off's for the following year and refinance with tax returns instead of bank statements. The fair score of 667 should be over 670 by then (closing) which is considered Good (I am only 3 points away from being a Good score instead of a fair score). It takes 6 months for the house to be built. Hopefully all will go smoothly. There is always bumps in the road. Thanks again
@JVille....FICO score is fair but 3 points from being Good. The 15,000k deposit is to start building and not the full down payment at closing. We have the choice to put 10% down with PMI or 20% without any PMI which makes a HUGE difference in monthly payments. That’s another choice we must make. Yes others told us 7% under these circumstances is pretty good but I still don’t like it that high even if it’s only for a year. We need to shop more and look into all choices, including adjustable rate since we plan on refinancing later anyways (adjustable rates seem to start lower). Thanks for your reply
working on one of these loans myself; doing 20% down; rates at 5.75 to 6; midscore 687
I just ran the scenario through my pricing engine and it shows rates in the 5's. 7 seem a little high. FYI, one possibilty for higher rates, it just depends on the profit margin of the lender you applied with. This could be the one biggest reason. Some of us Branch Managers have set our branch margins a little lower to be more competitive.
Tip - When shopping for rates and fees, the LO only needs limited information in order to price out your loan. If you tell them you have recent had a a tri-merge pulled and you have your median score, that should be sufficient along with some other basis info such as:
1.) Any late payments in the past 12 months
2.) Having a BK or Foreclosure in the past 24 months
3.) Sales Price / Loan Amount (goes to LTV)
4.) 12 month bank statements or 24 months
Please know all NonQM loan products require reserves. Some as low as a 3 months or as much as 6 months depending on the program.
Hope this helps!
Hi there! Husband and I just closed on our new construction build home in May, doing the Bank Statement Program as well. Ours was a 5/1 ARM (no option to do 30-year conventional) with an interest rate of 5.75%, 20% down. Our scores were little over 800, and DTI was around 12%. I'd definitely shop around, and possibly explore going to the builder's lender to see if they offer any incentives. Being self-employed makes us a huge risk, but it's definitely not impossible. We do jump through many more hoops, but it's worth it! We plan on refinancing in 4-5 years to lower our rate, because this time around, we're establishing an LLC and will be paying ourselves like regular employees.
Thanks to all who have contributed to this discussion. I think it's helpful for other business owners as well as me.
We have shopped and shopped. What we learned is going through an online broker has gotten us nowhere, builders and banks call internet brokers fly by nights. They say their not reliable when building a house, especially with a business statement loan. That holds to be true from what we experienced.
One of the brokers did NOT accept Paypal statements along with the bank statements where others will. I found that to be ridiculous. Another one calculated a worksheet of the bank statements less ALL of the withdraws and transfers, bottom line was considered our income. That was the most ridiculous! When we had already gone over all our debits to subtract. All withdraws and transfers doesn’t mean they were all bills. That made no sense.
We have now been pre-approved with a bank that will not sell our loan, they take paypal statements along with the bank statements and calculated the bottom correctly. They offered us 10% to 20% down as options (we decide depending on options). No mortgage insurance, a percentage rate of 6% is were we are at with this bank. This bank said my score was 685 and that was fine. I know on Equifax my score was higher then the other 2 credit bureaus so I guess they used the highest score where some of the other companies used the lowest score. They told us when things get better they can do a streamline refinance (what ever that means?) I need to research that more.
I must say it was not easy finding a bank that works with bank statements. Many just work with tax returns. We were referred to this bank by another bank that could not work with us and this bank happened to work with our builder also which was Lucky. So far with my experience I would suggest to ask the banks who they can refer you to that works with Portfolio Loans using Bank Statements and forget about the brokers (middle man) who will sell your loan later. Obviously they are not giving you the best rate but a rate that suits them to make money off of you after they sell it. Since we are building our house I will keep updating our experience up to closing, which won’t be for 6-8 months. Hope this helps others.
Thanks for sharing OP and kudos on finding a lender that will work with your specific situation.