Non QM Product
BORROWERS MUST BE SELF-EMPLOYED TO QUALIFY FOR THIS PROGRAM
Using Personal Bank Statements to Qualify
- Business license (if available - depending on nature of business)
- Validation of minimum of 2 years existence of the business from one of the following: Business License, Letter from Tax prepare, Secretary of State Filing or equivalent.
- Most recent 12 or 24 months personal bank statements - Utilize 12 or 24 months average deposits to qualify (minus disqualified/unrelated deposits)
- Most recent 2 months business and statements- Demonstrate transfers from business to personal bank account statements provided
- Borrowers must own a minimum of 25% of business to be considered Self-Employed, for use of personal bank statements.
- Qualifying income may not exceed the income indicated on the initial 1003.
Personal Bank Statement Analysis
- Income should be calculated based on a 12 or 24 month average of total deposits minus any unusually large deposits exceeding 50% of the monthly income (as defined by Fannie Mae) into personal accounts must be explained via LOE. If LOE is sufficient, no sourcing required.
- Pattern of deposits and payment should be consistent
- ATM deposits may be included if a consistent pattern of such deposits is present;
- Expectation of changes in deposit pattern must be considered;
- Two months business bank statements;
◦ Must be evidence activity to support business operations, and
◦ Reflect transfers to the personal account
Using Business Bank Statements / Co-mingled (Business & Personal) to Qualify
- Business License (if available-depending on nature of business)
- Validation of minimum of 2 years existence of the business from one of the following: Business License, Letter from Licensed Tax preparer, Secretary of State filing or equivalent. Borrowers utilizing business bank statements that own > 50% but < 100% of a business will be qualified at the P&L net income multiplied by their ownership. Less than 50% ownership will require exception approval for use of Business Bank Statements
- Documentation options:
- Business Expense Statement letter: (Option 1)
◦ An expense statement specifying business expenses as a percent of the gross annual sales /revenue prepared and signed by a licensed tax preparer.
◦ 12 or 24 months of business bank statements covering the most recent time period.
◦ Net income determined by total deposits per bank statements less total expenses. Total expenses calculated by multiplying total deposits by the expense factor provided by licenses tax preparer. Qualifying income is the lower of the net income from the analysis or the income indicated on the initial 1003.
- 12 or 24 Month P&L Statement (Option 2)
◦ 12 or 24 Month P&L prepared by a licensed tax preparer
◦ 12 or 24 Months of business bank statements covering the most recent time period and matching the time period of the P&L.
◦ P&L Sales/Revenue must be supported by the provided bank statements. Total deposits per bank statements, minus any inconsistent deposits, must be no more than 10% below revenue on P&L. The bank statements and P&L must cover the same time period. Qualifying income is the lower of the Net Income indicated on the P&L or the income indicated on the initial 1003
- 12 or 24 Month Borrower Prepared P&L Statement: (Option 3)
◦ 12 or 24 month P&L prepared and signed by the borrower
◦ A business narrative provided by the borrower which included detail regarding the size and operating profile of the business addressing location/rent, number of employees/contractors, COGS, Trucks/Equipment (Owned or leased). The expenses listed on the P&L should address all items disclosed in the narrative.
◦ 12 or 24-months of business bank statements covering the most recent time-period and matching the same period covered by the P&L
◦ Borrower is required to provide separate P&L’s & business narrative for each business being used in qualifying
◦ P&L Sales/Revenue must be supported by the provided bank statements. Total deposits per bank statements, minus any inconsistent deposits, must be no more than 10% below sales/ revenue reflected on the P&L. The bank statements and P&L must cover the same time periods. Qualifying income is the lower of the Net Income indicated on the P&L or the income indicated on the initial 1003
◦ The analysis of the business and P&L will require a basic understanding of the borrower’s business. The narrative provided by the borrower should be reviewed to determine if the business provides a device or produces/manufactures goods. If the business has a web site, it should be reviewed to gain additional information of the business and its size. The goal of the analysis is to determine if the individual/total expenses as provided by the borrower on the P&L appear reasonable for the type of business. The items to consider in this analysis;
▪ Description of business from narrative
▪ Location of business - Home based or lease space (Google address)
▪ Utilities- Phone, electric, internet
▪ Number of employees or contractors- employee taxes, payroll expense
▪ Cost of Goods sold- What type of materials does the business use or manufacture.
▪ Equipment or trucks/vehicles owned or leased
▪ Type of client base-retail or commercial
▪ Any recurring payment on the bank statements should be compared to an expense item on the P&L for reasonableness
- The underwriter should provide notes of their analysis on the U/W approval for/1008/or within the bank statement analysis.
- Expenses must be reason for the type of business;
- Pattern of deposits and payment should be consistent;
- Income documented separately but co-mingled must be backed out of deposits