Business Purpose Mortgage Loans
The "business purpose" loan is a primary residence stated income mortgage program. In all actuality, it is much like a stated income program because it doesn't require any kind of income documentation. True No Doc mortgage program on a primary residence is considered a "business purpose" loan, as opposed to a "Consumer Purpose Mortgage" (a regular mortgage loan). It's done this way so lenders can offer and fund cash-out refinance loans (owner-occupied) to self-employed borrowers.
What is a Business Purpose Mortgage?
There are specific documentation guidelines for this type of program and must be followed accordingly. One of which is we require a statement from the borrower/applicant describing the intended use of funds (hand-written is best) in great detail. Funds are supposed to be used to improve, start or expand a business.
Business Purpose Mortgage Guideline Highlights
- Cash-Out Refinance. Cash-out must be wired into the borrower's business bank account.
- $10,000,000 Loan Amount
- LTV: 85% Maximum
- 640 Middle Credit Score
A minimum of 51% of cash-out must be used to improve or expand the business and Borrower must submit a cash-out letter of explanation detailing the use of funds including remodel construction bid contracts, etc. Inventory purchase, The letter of explanation must also include an explanation regarding the anticipated economic gain that will result from loan proceeds.
Employment Type: Self-Employed
- C Corporation
- S Corporation
Some of our lenders will allow for a business entity change (2 years of employment verification). For example, if a borrower changes their company from a corporation to an LLC, they'll allow that. Even from a 1099/independent contractor business to a corporation. We know this from experience.
Income Documentation - No Doc
Liquid Assets Not Required
- Single Family Residence
- 2 Units
- 4 Units
- Owner-Occupied / Primary Residence
- Non-Owner Occupied. A rental survey usually is required for investment properties
All owners/people on the title of the property must apply (be on the application). If this is for some reason not ideal or is not conducive to the borrowers' preference, the property owner can "quitclaim" him or herself off of title anytime between the "Application Date" and the Close of Escrow, then just go back on the title after the loan closes if you wish. This can all be done and executed at the closing table.
Cash-out can be used for any "business purpose"; improving the economic disposition of the company.
Corporations and LLC's businesses OK.
An example of this could be to improve the physical location architectural design of the business renovation. Good supporting documentation could perhaps be some architectural drawings, Mechanical/Plumbing/Structural & Electrical design plan and specifications.
Construction: Electrical - Lighting plan, power plan, panel schedules, and single line diagram, details and specifications, Title-24 compliance documents.
Plumbing - Sanitary waste and vent piping plan, domestic water, and piping plan, details, and specifications.
Architectural - Cover sheet, general information sheet, code analysis sheet/exiting diagram site plan, ADA compliance sheet, floor plans, roof plan, storefront elevation, building sections.
Complete original appraisal with interior/exterior photos of the subject property and sales comparables.
Hazard insurance coverage equal to the replacement or guaranteed replacement cost. Max deductible 1% of the face value of the dwelling coverage amount, but no more than $3000. 12 months of paid coverage required on purchase loans and 6 months for refinance loans.
Sitework: Building demolition, Concrete, etc.
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R #: 5453-9-20-1-4-5-12