What Are Creative Lending Solutions for Clients With Non-Traditional Income?
Navigating the financial landscape can be daunting, especially for those with non-traditional income streams. This article demystifies the process with innovative lending solutions, drawing on the knowledge of industry experts to guide clients towards financial stability. Explore the practical strategies and expert advice that can help unlock new possibilities for income diversification and loan approval.
- Use Bank Statement Loan Program
- Private Lending for Non-Traditional Income
- Use Average Income for Loan Approval
- Leverage Payment Reserves for Stability
Use Bank Statement Loan Program
One creative lending solution I offered to a client with non-traditional income was through a bank statement loan program. The client, a self-employed graphic designer, had a strong cash flow but inconsistent income due to project-based work. Instead of relying on W-2s or tax returns, we used 12 months of business bank statements to verify their income. This approach provided a clearer picture of their earning potential and allowed us to calculate an average monthly income that qualified them for a loan. As a result, the client secured financing for their dream home, and the process also reinforced their confidence in exploring future investment opportunities despite having a non-traditional income structure.
Private Lending for Non-Traditional Income
Private lending is often the most creative and flexible solution for clients with non-traditional income. At Vaster, our private loan program allows investors to state their universal gross income to provide an overview of their capacity, while we rely on the property's equity to mitigate risk and offer short-term lending solutions. For clients with irregular income, bank statements showing cash flow from their business or personal accounts can help demonstrate their financial capacity. Over the past seven years, private real estate loans have proven to be a very effective solution for my clients. This approach has enabled us to deliver short-term funding that supports successful real estate investments. It's all about tailoring creative strategies to meet unique client needs.
Use Average Income for Loan Approval
Great question. We had a client who was going from a W-2 to self-employed in the SAME industry. Normally you would need two years of self-employed income, but because he was going from a software engineer at his previous employer, W-2 income, to a software developer for a company that he had started just six months prior, we were able to use his average income over the last 18 months including his W-2. The client was told by the "big box" lenders that he needed two years and we were able to successfully close his purchase on time with a very competitive rate.
Leverage Payment Reserves for Stability
Mortgage professionals often face unique challenges when working with clients who have non-traditional income, such as self-employed individuals, freelancers, or gig workers, but leveraging payment reserves can be a highly effective solution. By structuring a loan to include a reserve account-where additional funds are set aside at closing or from a lump sum payment-clients with fluctuating income, such as seasonal workers, can cover several months of mortgage payments. This approach not only provides financial stability during lower-income periods but also strengthens their mortgage application by demonstrating financial preparedness. The result is a win-win: clients maintain homeownership without the stress of inconsistent income, and lenders showcase their flexibility and innovative problem-solving.
