According to the California Employment Development Department, self-employed individuals, including corporate officers with 25% or more ownership, make up a substantial portion of the state's workforce. Popular self-employed professions in California range from freelancers in the entertainment industry to independent contractors in construction, real estate, health and medical services, and design.
How Bank Statement Loans Work in California
A non-QM lender will use a borrower's bank statements as an alternative to tax returns to assess their self-employed income. This is not unique to California and is available in any state. The self-employed borrower must meet specific eligibility criteria.
California borrowers should have:
- - Credit Scores above 660. Scores of 740 & above are ideal.
- - Debt-to-Income Ratios below 50%
- - Down Payment of 10-25-percent. This isbased on your credit score and home value
- - Cash Reserves: 6-12 months of the mortgage payment. Funds in retirement accts. or savings are okay.
- - Housing payment: 0 to (1) 30-day late on their housing payments in the last 2 years
Lenders typically require 12 to 24 months of personal or business bank statements to assess consistent cash flow. Documentation proving business ownership and percentage of the business owned, or a professional license if you are a 1099 independent contractor working in California may also be required.
Compared to traditional mortgages, bank statement loans offer borrower’s higher affordability to get financign approved on a multi-million dollar home. For instance, a tech entrepreneur in San Francisco with fluctuating monthly income might find it difficult to qualify for a jumbo loan but their high annual income combined with their occupation would likely help them secure a bank statement loan. In another scenario, a self-employed consultant in San Diego could use a bank statement loan to purchase a $1.5 million property despite significant tax deductions that reduces their income by 50%.
Benefits of Bank Statement Loan for California Entrepreneurs
For self-employed Californians, traditional mortgage applications can be frustrating, especially for those with significant tax write-offs. Bank statement loans allow borrowers to bypass the limitations of tax returns by focusing on actual income shown through bank deposits. This approach is especially beneficial for California’s diverse entrepreneurial landscape which includes white-collar professionals, tradespeople, and gig workers.
In a state with booming industries like tech and entertainment, freelancers, solo business owners, and independent contractors often face difficulties when applying for conventional loans. Bank statement loans provide a solution, enabling Californians to leverage their actual earnings to qualify for a home loan. Whether you’re a tech freelancer in Silicon Valley or a food truck owner in Los Angeles, this type of loan gives you the flexibility needed to finance your dream home.
Bank Statement Mortgages Help Different California Industries
Bank statement loans are ideal for a variety of self-employed professionals in California, especially those in industries where income may fluctuate or be project-based. Tech entrepreneurs, freelancers, and solo proprietors in Silicon Valley often have high monthly cash flow but limited taxable income due to deductions, making bank statement loans an attractive option.
Similarly, professionals in the entertainment industry, such as actors, producers, and gig workers in Los Angeles can benefit from the flexibility of bank statement loans. Other freelancers like graphic designers, photographers, and consultants also find these loans helpful in qualifying for home purchases based on actual earnings rather than reported income.
My Expert Tips for California Bank Statement Loan Applicants
To increase your chances of approval for a bank statement loan, you’ll still need to:
– Keep your finances well-documented.
– Ensure that your bank statements clearly show consistent income deposits over a 12 to 24-month period.
– Avoid excessive overdraft or NSFs as this can raise concerns with underwriters.
– Maintain a credit score over 680 with low credit utilization. 740 and above is ideal.
– Don’t make excessive credit inquiries before applying.
If you're new to bank statement loans, as a California mortgage professional with super deep knowledge about this loan product for self-employed borrowers I am available to answer any questions you have.
Success Stories from California Borrowers
1.) Tech Entrepreneur
A software developer in Palo Alto, who had been self-employed for two years, struggled to secure a traditional mortgage due to fluctuating income. By using 24 months of bank statements, they qualified for a bank statement loan and purchased a $1.5 million home.
2.) Lawyer with a Private Practice
A solo practitioner in Beverly Hills leveraged their consistent income deposits from client fees to qualify for a bank statement loan to secure financing for a $2 million home in the upscale neighborhood.
3.) Food Truck Owner
A craft services food truck owner serving the entertainment industry in Los Angeles used 12 months of business bank statements to refinance their mortgage. They lowered their interest rate and free’d up cash flow for business expansion.
