Since the advent of the home lending process as we know it today, self-employed borrowers have historically faced significant obstacles when seeking mortgage approvals. These individuals now represent nearly 10% of the U.S. workforce as of 2024 and contribute substantially to the nation’s overall economy. Yet their unique financial situations often place them outside the boundaries of conventional lending practices.
Verus Mortgage Capital, a leader in non-qualified mortgage (non-QM) lending, offers innovative solutions to help lenders bridge the approval gap, ensuring these borrowers gain access to the financing they need, while adhering to responsible lending standards.
Today’s Self-Employed Market: A Major Opportunity
The COVID-19 pandemic contributed greatly in changing the self-employed population from a relatively small outlier into a vast and economically robust group spread across nearly every major industry in the country. With approximately 16.75 million self-employed workers in the U.S. according to the Bureau of Labor Statistics, this group commands significant purchasing power. Data indicates that self-employed households:
- Represent a $2.8 trillion total addressable market.
- Own roughly 5.7 million homes nationwide.
- Earn incomes that are, on average, 32% higher than their salaried counterparts.
Possess a net worth nearly three times greater than that of traditional wage earners.
The Non-Agency Advantage: Bank Statement Loans
Traditional lending methods rely heavily on W-2s, pay stubs, and tax returns to verify regular, steady income. These documents, however, often fail to capture the financial complexity and true earning potential of self-employed individuals. Enter bank statement loans, a cornerstone product in the non-agency space.
What Are Bank Statement Loans?
Bank statement loans qualify borrowers based on cash flow rather than reported income. Lenders analyze a set number of bank statements—Verus typically requires 24 months—to assess income stability and ability to repay (ATR). As a flexible alternative to traditional loans, Verus Mortgage Capital offers options across various loan amounts and property types to meet diverse borrower needs.
- Loan Terms: 30-year and 40-year interest-only options.
- Loan Amounts: From $150,000 to $4 million.
- Flexible Underwriting: Debt-to-income (DTI) ratios up to 50%, loan-to-value (LTV) ratios up to 90%, and FICO scores as low as 620.
Eligible Properties: Primary residences, second homes, and non-owner-occupied (NOO) properties.
Why 24 Months of Statements?
While some lenders in the market accept as few as 1 - 2 months of bank statements, Verus advocates for 24 months of financial information. This deeper financial history offers several advantages:
·High Risk Assessment Accuracy:
A two-year window provides a more reliable picture of income stability and trends, and a more accurate picture of borrower risk.
·Better Rates for Borrowers:
Lenders using 24 months of statements can offer more competitive interest rates or other preferential terms, reflecting the reduced risk that additional financial analysis can bring.
·Compliance with Ability to Repay (ATR) Requirements:
The ability-to-repay (ATR) rule is a critical component of responsible lending. Verus does not purchase loans based on short financial histories, ensuring alignment with ATR guidelines and minimizing portfolio deterioration. Accepting only 1-2 months of bank statements exposes lenders to greater liability, as this limited data may not fully reflect a borrower’s ability to repay. Even with good-faith lending, such approvals increase the risk of loan deterioration
Addressing Common Challenges for Self-Employed Borrowers
Self-employed borrowers face unique challenges like fluctuating incomes, complex tax returns, and strict documentation requirements. Traditional loans lack provisions to address these issues, but Verus’ bank statement loans provide a solution by offering:
- Unlimited Cash-in-Hand: Borrowers that qualify have the potential to access significant liquidity for their needs.
- Expense Ratio Flexibility: Tailored calculations that account for the variety of business expenses that self-employed borrowers often incur.
Expert Underwriting Support: Verus provides robust bank statement analysis to assist lenders in evaluating borrower profiles professionally and accurately.
Utilizing the Verus Advantage
Partnering with Verus positions lenders to capture a significant share of the self-employed market that their competitors may be largely – or even entirely – avoiding, while maintaining sound underwriting practices. Here’s how:
- Experience and Expertise: With self-employed loan purchase volumes averaging $300-400 million or more per month, Verus has developed a deep understanding of this segment's needs.
- Tailored Products: From bank statement loans to asset-based options, Verus offers a fine-tuned suite of products designed to meet the diverse needs of self-employed borrowers.
- Investor Confidence: Verus upholds rigorous underwriting standards, ensuring the loans they purchase are not only market-competitive but also adhere to ATR compliance and other regulatory requirements within the industry.
Serving the Needs of Self-Employed Borrowers Through Non-Agency Lending
The self-employed market drives demand for non-agency lending. Verus Mortgage Capital’s bank statement loans help lenders turn financial success into homeownership, meeting the need for flexible solutions in this growing segment.
Interested in learning more about how Verus can help your organization serve self-employed borrowers? Contact Verus today to discuss our comprehensive suite of non-agency lending solutions!