Two Days Until Tax Day! Are Your Self-Employed Buyers Looking at the Wrong Numbers?

October 15 is just two days away, and I want to share something that could potentially save self-employed homebuyers tens of thousands of dollars.
We all know about bank statement loans. They let qualified self-employed borrowers use documented bank deposits to establish mortgage-qualifying income instead of relying on the net income reported on their tax returns.
But many don’t realize this. Bank statement loans with 20% down can be extremely competitive with conventional financing. In the scenarios we’re seeing, they’re often priced within about 0.125% of standard Fannie Mae rates, and sometimes the bank statement rate is even better than conventional!
That’s not a guarantee, and pricing varies by borrower and market conditions, but it’s a big reason we should compare these programs.
Now, with 10% or 15% down, conventional rates are generally better than bank statement rates.
But does that mean conventional financing is always the better financial decision?
Absolutely not!

Let’s Look at a $900,000 Home Purchase.
Imagine a self-employed buyer with excellent credit, no other monthly debt, and the cash needed for a down payment.
To purchase a $900,000 home with just 5% down using conventional financing, this buyer needs approximately $185,000 in qualifying annual income.
Now let’s assume this person is a self-employed California taxpayer. Reporting $185,000 in net self-employment income could result in about $59,000 in combined federal, California, and self-employment taxes.
That’s more than the $45,000 needed for a 5% down payment! The important question is whether the borrower can preserve legitimate business deductions while qualifying through an alternative mortgage program. 

Here’s How the Mortgage Payments Compare

Monthly totals include principal, interest, estimated taxes, insurance, and applicable PMI. Bank statement examples assume no separate monthly mortgage insurance under the selected programs. Rates are illustrative, subject to change daily, and may involve different points, fees, or investor requirements. 

Now Let’s Look at What Really Matters!
Scenario 1: Conventional Loan With 5% Down
The buyer puts down $45,000 and has a monthly payment of approximately $7,503.
But what if their tax returns don’t show sufficient qualifying income because of legitimate business deductions?
Before they change how they approach those deductions, shouldn’t they understand the actual tax impact? 

Scenario 2: Bank Statement Loan With 10% Down
The buyer puts down $90,000 instead of $45,000.
That’s an additional $45,000 down.
Their monthly payment is approximately $7,647, only $145 more per month than the conventional 5% down option!
Think about that. Another $45,000 in down payment, which becomes equity in the home, and a difference of just $145 per month.
Over five years, that payment difference amounts to approximately $8,700, before considering principal reduction, opportunity cost, and any refinancing.
Now compare that with a potential $59,000 annual tax obligation.
If a buyer can legitimately avoid an incremental tax expense by retaining allowable deductions, this mortgage comparison deserves serious attention.
And remember, that additional down payment isn’t a tax or a fee. It’s equity! Note: when they have more equity, the bank statement rate goes down. If they want to qualify for a refinance with 5% down, they have to show income again!   

Scenario 3: Bank Statement Loan With 15% Down
The buyer puts down 15% vs. the 15% conventional loan, and the payment goes up by $248.00 per month. They don’t pay $59,000 in taxes, and their break-even point vs. paying the taxes is 248 months! You are correct  20  years and 8 months! 

Scenario 4: Bank Statement Loan With 20% Down
A difference of only $62 per month!
In this example, the bank statement borrower gets nearly the same payment while using an alternative income-qualification method.
And there are times when bank statement pricing is even better than conventional pricing. 

What About the Tax Bill?
Consider these illustrative amounts:
Potential tax obligation – Amount
One year $59,000
Two years $118,000
Now compare them with the additional down payments:
Increase from 5% down.
Additional cash needed
Move to 10% down $45,000
Move to 15% down $90,000
Move to 20% down $135,000
One year’s illustrative tax bill is greater than the additional cash needed to move from 5% to 10% down.
Two years’ illustrative taxes are greater than the additional $90,000 needed to move from 5% to 15% down.
Now, I’m not suggesting that choosing a bank statement loan eliminates those taxes. It doesn’t. These figures represent potential total taxes, and only the portion legitimately saved through allowable deductions would count as a financial advantage.
That’s why we need to review the numbers with the client and their accountant instead of assuming the lowest down payment is automatically the best strategy. 

And What If They Need Two Years of Tax Returns?
Eligible self-employed borrowers may qualify under Fannie Mae or Freddie Mac programs using one year of tax returns. You must prove 5 years of Self-Employment for one-year findings.
Other situations, including many FHA and VA loans, generally involve a two-year self-employment income history.
Using our illustration, $59,000 per year for two years is $118,000 in total taxes.
Holy cow! 

That’s a tremendous amount of money to overlook when helping someone make the largest purchase of their life. Again, I’m not saying those taxes can or should be avoided. I’m saying we should determine whether different business deductions or income documentation choices affect mortgage qualification and what the actual incremental cost would be. 

Realtors, Here’s My Question
How often do you hear your self-employed buyers say:
“I need to file my taxes before I can purchase.”
Or:
“My lender says I need to show more income.”
Or even:
“My CPA wants me to take more deductions, but my lender wants me to show more income.” 

Before your buyer makes that decision, let’s look at the math!
Sometimes conventional financing makes the most sense.
Sometimes 10% or 15% down with a bank statement loan is the smarter solution.
And sometimes a 20% down bank statement loan is so competitive with conventional financing that the decision becomes extremely straightforward.
There is no reason to assume that a buyer must qualify based solely on the income shown on their tax returns.
Our job is to help them understand every legitimate financing option available.
And remember, if rates improve in the future, refinancing may provide an opportunity to reduce the interest rate and monthly payment.
At Augusta Financial, we also offer our Free Lifetime Refinance Guarantee for eligible borrowers, which can help reduce qualifying future refinancing costs. Ask us about the program requirements and restrictions. 

The lowest rate today doesn’t always mean the lowest overall cost of homeownership.
If you have self-employed clients preparing to file their taxes, or clients who think they can’t qualify because of their tax returns, call me before they make a financial decision based only on what they believe a lender needs. 

One last thing that never happens! LOL!
We get self-employed people who haven’t filed taxes since 2020. We don’t check that if we are doing a Bank statement loan!
Let’s make sure we’re doing what it takes to help our clients get the house they want at the lowest overall cost! Taxes being one of those costs!   

Interest Rates
We are on a roll! The markets were closed yesterday, and Friday was good, and today is a little better! Rates have come off their crazy highs, and the 10-year is around 5.20%, still awful, but 0.15% better than it was.     

Loan Programs Snapshot

• Government loans (FHA/VA/USDA): in the low 7’s –
• Conventional (≤ $832,750): in the 7’s
• High-balance: in the 7’s
• Jumbo: In the 7’s
• Bridge Loans: 8.290%

Additional options:

• Bank statement loans (10% down+)
• P&L loans (20% down, no bank statements)
• 0% down options (620+ score)
• DSCR loans (15% down)
• Buydowns Available (3/2/1, 2/1, 1/0)
• Private Money loans – Hard Money  
• Construction Loans
• 203K loans
• Commercial Loans
• Fix and Flip Loans  

Rates subject to change without notice. 

Condo Update
Good news:
American Beauty Village West: Is FHA-approved but still on Fannie’s Naughty list for now!  

Bad news:
Nothing new!
We love your Non-Warrantable Condo loans!!
Need help checking a condo? Call me, and we can look it up in real time.
Also:
Full California “naughty list” available here:
https://mikemeena.com/non-warrantable-condos/

If you or your clients, friends, or family need guidance, I'm here.

📞 661-291-2222 (Direct)

📞 661-714-6258 (Cell)

📞 661-260-2970 ext. 2222 (Office)

📧 Mike@AugustaFinancial.com

Sincerely,