Many homebuyers today are either fully self-employed, or do some gig work on the side. If that describes you, you may wonder how you can buy a home when the traditional mortgage process is designed around employees. The answer is to apply for a bank statement loan.

The Traditional Hurdle: The W-2 Form

Here is what happens if you try to apply for a traditional home loan as a self-employed person. You have to document your income to prove your eligibility. You’ll be asked to do this by furnishing the W-2 tax form. If you were an employee, you would have one of these, issued by your employer. But as a self-employed person, you don’t receive a W-2 or create one.

Big banks that only know how to verify income using a W-2 tend to send self-employed people on their way. But mortgage companies that offer bank statement loans give you an alternative.

The Workaround: Bank Statement Loans

With a bank statement loan, you can skip providing a W-2. To verify your income, you simply provide 6-12 months of bank statements. This is enough in most cases to prove that you can afford a mortgage.

The bank statement loan process can also be helpful in situations where you work as an employee, but also do gig work.

In those scenarios, you can submit your W-2 to verify your employment income. But you can then submit bank statements as well to document all the income you receive that is not on your W-2.

If you have more than one bank account where you receive self-employment income, remember to submit bank statements for all of your accounts. It is important not to miss any of your income, since doing so would hurt your debt-to-income (DTI) ratio.

If you store a lot of your income in e-wallets, crypto wallets, etc., ask whether you can submit statements for those as well. If you cannot, you should transfer your income to bank accounts where you can product statements for the loan application process.

Income Earned Unevenly

What do you do if you earn income unevenly throughout the year? This is common in self-employment, especially if you work in as seasonal industry, or your clients just vary a lot with their schedules for getting you paid.

You should write up a letter of explanation about the uneven income, explaining the reasons for it. That way, you can at least try to prove that your business can produce income reliably, and isn’t subject to random swings up and down.

Buy a Home in Chicago and Beyond

MidAmerica Bancorp, Inc. is based in Oak Lawn. We work with homebuyers and homeowners in the Chicagoland area and the rest of Illinois. We are also licensed to work with borrowers in Florida, Indiana, Michigan, Tennessee and Wisconsin. Please give us a call at (708) 237-4050 to schedule your consultation to apply for a bank statement loan. Let’s get you into your dream home.