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%. Current mortgage rates fluctuate based on market conditions, so borrowers should monitor them closely. The average interest rate on a 30-year fixed jumbo mortgage is around 8.00%. Jumbo mortgage rates are typically higher than conforming loan rates, and actual rates can change frequently depending on the market.

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. When evaluating loan offers, borrowers should compare the annual percentage rate (APR) and annual percentage rates, as these reflect the true yearly cost of borrowing, including both interest and fees.

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. Loans above the Fannie Mae conforming loan limits are considered jumbo loans.

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. The loan term can vary, and for some products, there is a fixed rate period during which the interest rate remains unchanged before potentially adjusting. 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. Interest-only jumbo mortgages may be available as a fixed rate loan or an adjustable rate mortgage, offering borrowers the choice between predictable payments or rates that may adjust over time. Qualified borrowers can often access competitive rates on these large loans.

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.

• Borrowers seeking flexibility through adjustable rate mortgages or adjustable rate loans

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.

• Certain jumbo mortgage products may require a minimum down payment, and in some cases, a larger down payment is needed to qualify.

• Fixed rate options are available for borrowers who prefer predictable payments throughout the loan term.

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 a mortgage:
Before starting, prepare for the loan application process by gathering necessary documentation, such as proof of income, assets, and credit history.

• 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. Loan to value (LTV) and loan to value LTV ratios play a key role in qualification and down payment requirements, as lower LTV ratios may help you secure better terms. 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. Keep in mind that loan amounts above conforming limits require stricter qualification standards. 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.

When comparing mortgage options, remember to factor in closing costs and consider whether purchasing discount points could help lower your interest rate and overall loan costs.

3. Choose the Right Lender 

At this stage it is important to research the mortgage providers that meet your requirements. Lenders who specialize in home lending to self-employed borrowers have the experience and expertise to help you qualify for a home 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 home 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.

MBANC is a Member FDIC and an Equal Housing Lender. All home loans are subject to credit and credit approval.

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 property type that you need, such as a single family primary residence, other primary residences, or investment properties. Rates and terms may vary depending on property type.

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. At that point, your monthly payments will include both principal and interest; taxes and insurance are not included in the base payment.

Please note that your actual payment obligation may be higher due to taxes, insurance, and other costs. Interest rate and program terms are subject to change without notice.

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. Loan approval is required before you can finalize the mortgage, and the closing date will be set once all conditions are met. 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. MBANC also offers refinance loans for borrowers looking to improve their current mortgage terms.

Frequently Asked Questions 

Below are some questions our clients ask us about our interest only jumbo mortgage.