Being self-employed does not mean you cannot secure a construction loan. Today, there are stated income construction loans offered by many lenders. Knowing how to find them and what the lenders require can help make the process easier for you.
Who Qualifies for Stated Income Construction Loans?
The first step is figuring out who qualifies for a stated income construction loans. For example, if you are a salaried employee, you would not qualify. There is adequate proof of your income. The people who do qualify, though, are those who have income that is hard to decipher. Self-employed borrowers are the most common to qualify for this loan because their tax returns either do not reflect their actual income or they are too complex. Other borrowers who may qualify include those who work on commission or bonuses. If your tax returns show too many write-offs or you do not claim the income for some reason, the lender cannot use it. However, with a stated income loan, they can use alternative documentation to verify your income. Bank statements usually suffice. If you have proof of regular deposits in your bank account, a lender may be able to use your income.
How to Find the Right Lender
The trick is finding a lender willing to provide stated income construction loans. Ever since the housing crisis, many banks stepped back from stated income loans. Today, many lenders realize there is a need to fill, though, which is why they are starting to offer them. Your best bet is to stick with local or private banks. This means avoiding big banks, like Bank of America or Chase. Instead, hit up your local banks – even the banks where you hold your checking or savings account. Of course, you can apply with other banks that do not hold your money as well.
Before you apply with any lenders, try to get the following in order:
- Raise your credit score as much as possible. Most banks want a score of at least 620 for this type of loan.
- Gather your bank statements for the last 12 to 24 months. The longer period of time you can prove your income on alternative documents, the better your chances of approval.
- Save as much as you can for a down payment. The more you have invested in the property, the more likely you are to secure an approval.
Once you have the documents in order, you can start contacting lenders. Keep in mind that not all lenders will offer this program. You may have to put a little more work into finding a lender capable of handling this type of loan.
Something to keep in mind as you shop around for lenders for stated income construction loans is to find out their level of experience. Construction loans require different parameters than any other type of loan. If you use a lender not used to how the process works, you could experience delays and even denials with your new construction home.