By Bill Lyons | Updated on October 4, 2024
TABLE OF CONTENTS

    KEY TAKEAWAYS

    • Self-employed borrowers may struggle to qualify for a traditional home equity loan due to taking business-related tax write-offs or generating inconsistent income. 
    • A bank statement home equity loan allows self-employed homeowners to qualify using a series of bank statements rather than tax returns or pay stubs. 
    • While bank statement home equity loans offer a high degree of flexibility, they also tend to come with higher interest rates when compared to traditional home equity loans.

    Can You Get a Home Equity Loan If You’re Self-Employed?

    For many self-employed individuals, there are several challenges that stand in the way of qualifying for a traditional home equity loan. The primary obstacle is that home equity loans typically require a borrower to provide proof of income in the form of tax returns. 

    However, for many self-employed homeowners, their tax returns don’t accurately reflect their income. This is because self-employed business owners tend to write off more business expenses on their taxes than the average person, which lowers their taxable income. Additionally, business owners, freelancers, and contractors may have inconsistent or seasonal income, which can negatively impact approval for a home equity loan. 

    Nevertheless, self-employed individuals can secure a home equity loan with the right type of financing. Self-employed home equity loans offer an alternative path to approval, allowing borrowers more flexibility when it comes to providing proof of income. 

    What Is a Self-Employed Home Equity Loan?

    Home equity loans, also known as HELOANs or second mortgages, can be a great way for self-employed borrowers to pull cash out of their property and use it for a variety of purposes, such as consolidating debt, making home improvements, or funding a business venture. However, for self-employed borrowers, the process of qualifying for a second mortgage can be more challenging than for those who have a traditional job and a steady paycheck.

    One way self-employed borrowers can qualify for a second mortgage is by taking out a bank statement home equity loan, which allows borrowers to use their bank statement to prove their income. Bank statements can provide a more accurate picture of a self-employed borrower’s financial situation than tax returns, which may not accurately reflect their true income. By providing bank statements, self-employed borrowers can demonstrate to lenders that they have a consistent income and can afford to repay the loan.

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    Pros and Cons of Self-Employed Home Equity Loans

    A self-employed second mortgage can be a great solution for self-employed homeowners looking to tap into their equity and increase cash flow. However, this type of financing may not be the right option for everyone. Below we go into more detail about the benefits and drawbacks of self-employed home equity loans.

    Pros:

    • No tax returns required: With a self-employed home equity loan, you can qualify using a series of bank statements rather than tax returns.
    • Improve cash flow: A home equity loan provides you with an infusion of cash and increases the amount of money you have on hand. 
    • Flexible credit requirements: You can qualify for a bank statement home equity loan even if your credit isn’t perfect. 
    • Competitive interest rates: Home equity loans generally offer better interest rates when compared to alternatives like personal loans and credit cards. 
    • Flexible use of funds: You can use the funds you receive from a self-employed home equity loan for anything you’d like. 
    • Leave your 1st mortgage locked in: Access the equity in your home without having to refinance the low rate that you have locked in on your existing first mortgage. Getting cash out of the property without a cash-out refinance is a benefit to many homeowners.

    Cons:

    • Risk of foreclosure: Since a home equity loan is secured by your home, you run the risk of facing foreclosure if you default on the loan. 
    • Lower your equity: A home equity loan effectively allows you to exchange your equity for cash, so you will lose some of the equity you’ve built up by pursuing this type of financing. 
    • Higher rates compared to traditional HELOAN: While bank statement home equity loans may offer rates that are lower than other lending alternatives, they often come with higher rates when compared with traditional home equity loans or first mortgages. 
    • Increase debt burden: Taking out a home equity loan increases your overall debt burden. Taking on too much debt can put stress on your finances, so make sure you have a plan in place before taking out a self-employed home equity loan. 

    Self-Employed Home Equity Loan Requirements

    In order to qualify for a self-employed home equity loan, you’ll need to meet the following basic requirements:

    • Self-employed: To qualify for a home equity loan for self-employed individuals, you must have at least two years of experience in being self-employed. In some cases, you can be self-employed for a shorter period of time if you have previous experience in your industry. 
    • Home equity: Borrowers should generally have at least 20-40% equity in their home before applying for a self-employed home equity loan. In the end, you’ll be required to hold on to at least 15-35% of your home’s equity after funds are disbursed. In other words, the maximum combined loan-to-value is 85% depending on credit score.
    • Credit score: Borrowers are expected to have a minimum credit score of 660. 
    • Bank statements: Borrowers must be able to provide 12-24 months’ worth of bank statements that demonstrate consistent and sufficient deposits. 

    If you’re not sure whether you qualify for a self-employed second mortgage or if this option is right for you, feel free to reach out. You can call us directly or download the Griffin Gold app to get personalized chat support and access financial planning tools, smart calculators, and loan comparison features. 

    Apply for a Self-Employed Home Equity Loan Today

    A self-employed home equity loan can be a great option for self-employed borrowers looking to pull cash out of their property and use it for a variety of purposes. By providing bank statements and other documentation, self-employed borrowers can demonstrate to lenders that they have a consistent income and can afford to repay the loan. Fill out an application today and take the first step towards getting a self-employed home equity loan or home equity line of credit through Griffin Funding.

     

     

     

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.