Business Purpose Mortgage Loan Program

"Business Purpose" Mortgage

A business purpose loan is a primary residence stated income mortgage program. In all actuality, it's a stated income program disguised as a "business purpose" loan, as opposed to a "consumer mortgage" (a regular mortgage loan). It's done this way so lenders can offer and provide 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.

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.

Business Mortgage Guidelines

Cash-Out Refinance. Cash-out must be wired into borrowers' business bank account.

Loan Amount:

$6,000,000 Maximum

LTV: 80% maximum

Employment Type: Self-Employed

  • C Corporation
  • S Corporation
  • LLC
  • 1099

Some of our lenders will allow for a business entity change (2 years employment verification). For example, if a borrower changes their company from a corporation to an LLC, they'll allow that. Even from a 1099/independant contractor business to a corporation. We know this from experience.

Income Documentation: No income documentation (No Doc). Stated Income. No income verification. No asset verification.

Reserves: Liquid assets not required

Property Types
  • Single Family Residence
  • 2 Units
  • 2-4 Units

Middle Credit Score: 660

Occupancy Types
  • 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 conducive to the borrowers' preference, the property owner can "quitclaim" themselves off title for the time of application and escrow, then just go back on the title after the loan closes. 

Business Purpose

Cash-out can be used for any "business purpose"; improving the economic disposition of the company.

One common use is to improve the physical location of the business.

So, this would include stuff like architectural drawings: Architectural, Mechanical/Plumbing/Structural & Electrical design. Mechanical - HVAC plan, Equipment schedule, details, 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.

Collateral

Appraisal: Complete original appraisal with interior/exterior photos of the subject property and sales comparables.

Hazard insurance coverage equal to 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.

States:

Alabama, Arkansas, Arizona, California, Colorado, Connecticut, District of Columbia, Deleware, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisana, Maryland, Maine, Michigan, Minnesota, Montana, North Carolina, Nebraska, New Hampshire, New Jersey, Nevada, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Vermont, Washington, Wisconson, Wyoming.

 

Reference #: 5453-9-20-1-4-5-12