The US mortgage market has been cooling off since the Fed has hiked the key rate ten times between February 2022 and May 2023 to contain inflation. As a result, mortgage rates are much higher than they were in recent years. According to the Mortgage Bankers Association of America, the average interest rate on a 30-year fixed mortgage in the US is currently 7.31%. The average interest rate on a 30-year fixed jumbo mortgage is around 8.00%
Qualifying for a mortgage has become harder due to rising interest rates, increasing home prices and economic factors that have diminished disposable income and purchasing power. The home prices are the highest they have ever been, and as a result, self-employed borrowers who are able to qualify for a mortgage still have to contend with the affordability requirement.
The self-employed borrowers in the market today must do their research, prepare and plan, as well as understand how to navigate the mortgage approval process and what lender to choose for the best outcome. For example, read the inspiring story of Scott, a driven self-employed entrepreneur, who used his business bank statements to secure a $3 million luxury home in Saint George, Utah, leveraging the mortgage expertise of MBANC.
Why an Interest-Only Jumbo Mortgage
When you take out a mortgage, your payment includes repayment of the principal amount and interest payment. An interest-only mortgage is a loan that allows you to make interest-only payments during the initial period of five to ten years, making initial monthly payments smaller than with a standard mortgage. Once the interest-only period ends, you either begin paying the interest and principal, pay off the loan balance in one lump sum (balloon payment), or refinance the loan for better terms.
Jumbo refers to the size of the mortgage. For example, premium lenders like MBANC can provide loans up to $4 million.
An interest-only jumbo mortgage could be a great option for:
- Home buyers who want to keep monthly payments to a minimum
- Home buyers who move frequently
- Home buyers who expect their income to increase significantly in the future
- People interested in purchasing a second home
- Those purchasing a home as an investment property.
Interest-only mortgage offers financial flexibility and specifically the following benefits:
- You can free up the cash for strategic use
- You may be able to qualify for a more expensive home
- You can defer larger payments to a later period when you grow your income, refinance the mortgage at a lower rate or leverage rental income from the property.
- You can make payments to and reduce the principal balance during the interest-only period, which means you can repay the mortgage faster than a conventional mortgage.
5 Steps to Qualify for an Interest-Only Jumbo Mortgage for Self-Employed Borrowers
1. Confirm Your Income Type
A mortgage applicant is considered self-employed if they own more than 25% of a business or partnership or file a 1099 tax form. In general, you are considered self-employed by a lender if your primary source of income is from being a business owner, freelancer, or independent contractor. mbanc expert loan officers, processors and underwriters have exceptional experience interpreting complex income scenarios that is exclusively acquired from working with self-employed clients for years.
2. Crunch the Numbers
There are some basics you need to consider before you apply for mortgage:
- Check your credit score and credit report. Lenders require a good credit score for jumbo loans. For example, MBANC requires a minimum FICO of 660 to qualify. If you have a credit score of less than 619 but have a co-signer or someone who is able to take the primary loan position, get in touch with us and we will guide you through the options.
- Determine the down payment amount. Jumbo mortgages normally require a higher down payment than conventional mortgages. The higher the down payment, the lower the interest rate and a monthly payment you need to make. At MBANC, we understand you’d rather have your cash work hard for you, so down payment amounts for our interest-only jumbo mortgages start as low as 15%.
- Know your Debt-to-Income (DTI) ratio. The DTI ratio is your monthly average income minus your expenses. We normally require the DTI ratio of 43% or less. You can estimate your DTI ratio here.
- Save now and plan ahead. The interest-only mortgage with MBANC allows you to make lower payments in the first 10 years, as you are repaying interest only during this period. Make sure you have a plan for when the interest-only period ends and you will need to start repaying principal balance.
3. Choose the Right Lender
At this stage it is important to research the mortgage providers that meet your requirements. Lenders who specialize in lending to self-employed borrowers have the experience and expertise to help you qualify for a loan. Read their reviews and testimonials, and understand their strengths and weaknesses, such as the average deal closing time and how flexible they can be when it comes to exceptions.
There are two types of mortgage lenders — direct lenders (banks) and mortgage brokers. If you decide to go with a broker, make sure you understand how they choose a lender and if they are incentivized to do so. Read reviews and testimonials as brokers may not always be sufficiently flexible or able to influence the lender’s decision-making process, such as requesting an exception.
Self-employed borrowers have unique income structures, dynamic financial profiles, or extensive real estate portfolios that require guideline exceptions to qualify for financing. Unlike consumer direct lenders like MBANC, brokers are not always able to deal with such complex scenarios.
At MBANC, we have supported self-made, unconventional borrowers like yourself for years with premier lending solutions that help you create financial freedom on your terms. mbanc is a direct mortgage lender and family owned bank, which means we are able to provide end-to-end concierge service and tailored financing solutions for every client. Most importantly, we offer an expedited approval process that minimizes paperwork, tailored expert advice and premium service, all of which ultimately saves you time and money.
4. Understand the Terms
Make sure you understand the terms of the products that the lender of your choice provides. For example, for the interest-only jumbo mortgage, it is not only the loan amount and interest rate that matter. You also need to look closely at how long the interest-only period lasts, what happens when it ends, and whether the lender covers the type of property that you need.
For example, MBANC’s interest-only jumbo mortgage is available for all types of property — primary residence, second home, and investment property. In addition, with mbanc all mortgage programs are eligible for interest only options. The interest-only period, provided as part of a 30-year or 40-year fixed term mortgage, is ten years long. It means you only pay the monthly interest payments during the first ten years. When the ten-year interest-only period ends, there is no lump sum balloon payment, and the loan automatically converts into a 20-year or 30-year fully amortized fixed mortgage.
5. Get Qualified
As a self-employed business owner, step one is to get qualified (pre-approved) for a mortgage before starting to shop for a property. This will give you an idea of how much you can afford to borrow and a possible interest rate. To get qualified, you will need to provide documentation showing your income and expenses, such as tax returns, bank statements, and business records.
Income
Traditional lenders require a proof of steady, stable, verifiable income. Self-employed borrowers need at least two years of self-employment income to qualify for a mortgage. Lenders typically look at the self-employed borrower’s net income after deducted expenses.
Without a regular paycheck or W-2 statement, self-employed borrowers face stricter requirements. However, specialist mortgage lenders, like MBANC, who cater to your unique situation, can support you with alternative means to verify your income and get approved for a loan.
Documentation
Conventional lenders require traditional proof of income, such as W-2s and tax returns. A non-qualified mortgage (non-QM mortgage, for short) is a type of non-conforming loan where a non-QM lender uses alternative documentation, rather than standard federal qualifications, to assess the self-employed borrower’s creditworthiness.
For example, to get qualified with MBANC, you can use your business or personal bank statements for the last 12 or 24 months, your gross 1099 income, or your liquid or semi-liquid assets as a form of income.
Why MBANC?
We have been a premier consumer direct lender since 2005. Our founders are leaders with over 100 years of experience combined and closed deals in the billions of dollars in total. Our proprietary process delivers proven results.
Getting a mortgage with MBANC is different compared to other lenders. At the outset, you are working with a knowledgeable, understanding, qualified loan agent to find the best solutions for your mortgage needs.
Frequently Asked Questions
Below are some questions our clients ask us about our interest only jumbo mortgage.
What are Interest Only Mortgages?
A Interest-Only Jumbo mortgage allows borrowers to pay the interest only payment for a introductory term of 10 years. After the 10 year interest only period, the loan automatically amortizes into a 20 or 30 year fixed mortgage. Interest-Only home loans were designed to offer borrowers an alternative to traditional Fixed-Rate mortgages to finance a new property. It can be added to traditional loans to offer more flexibility for borrowers who qualify.
Do Interest Only Mortgages have a adjustable rate?
No. MBANC interest only mortgage options fully amortize into a 20 year or 30 year fixed term after the interest only period with zero balloon payment.
Are Interest Only Jumbo Mortgages more flexible than traditional mortgages payments?
This innovative interest only loan program provides homeowners with the flexibility to make low interest only payments or fully amortized payments without penalties.