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A 63-year-old independent consultant with a 790 credit score and roughly $500,000 in home equity has been rejected for a HELOC by two different banks in the past year. Both cited the same reason: his self-employment income, which fluctuates from year to year and is documented through tax returns rather than pay stubs, did not meet their income verification standards. He wanted $60,000 to pay off two high-interest credit cards carrying a combined balance that was costing him more than $700 a month in interest alone.
His income over the past three years averaged well above what the banks required, but averaged is the problem. One strong year followed by a leaner one, common for consultants who bill project to project, made his income look unpredictable on paper even though his total earnings and net worth told a different story.
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Conventional lenders typically want two years of tax returns showing stable or increasing income, along with a debt-to-income ratio under a set threshold. The Consumer Financial Protection Bureau's guidance on home equity lines of credit notes that lenders evaluate a borrower's ability to repay based on verified income and existing obligations, and self-employment income is inherently harder to verify against a fixed formula than a salaried paycheck.
A consultant who earned $180,000 one year and $95,000 the next may have averaged a healthy $137,500 annually, but an underwriter looking at the lower of the two years, or requiring consistency between them, can end up denying an applicant who is, by any reasonable measure, in strong financial shape.
A home equity investment does not require income documentation because it is not underwritten as debt with a monthly payment. Point offers this structure with no income or debt-to-income requirements at all, evaluating eligibility based on home equity and a credit score, which can be as low as 500, well below what most self-employed borrowers struggle to prove through conventional channels.
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