What Are Bank Statement Home Loans?
Bank statement loans are non-QM loans that allow borrowers to qualify based on their bank statements rather than traditional tax returns. This alternative income mortgage product is particularly beneficial for self-employed individuals, freelancers, and business owners who may have complex income structures or write-offs that don't accurately reflect their true earnings or lifestyle.
Self-employment rates vary across the country with some regions showing higher concentrations of self-employed persons. California leads, followed by Florida, New York, Colorado, and Texas. These states are known for industries that attract self-employed professionals who might benefit from bank statement mortgages.
Who this loan helps
We have helped finance a variety of small business owners, corporate officers and independent contractors which includes:
- Restaurant Owners
- Sole Proprietors
- Corporate Partners
- C-Suite
- Medical Doctors
- Lawyers
- Dentists
- Management Consultants
- Freelancers
- IT Consultants
- Real Estate Agents
- Contractors
Loan guidelines state if you own 25% or more of a business OR if you receive a 1099 you are considered self-employed and eligible in the eyes of a bank statement lender.
Why Consider A Bank Statement Mortgage Loan?
Many self-employed individuals face challenges when attempting to obtain traditional mortgages due to income documentation that reduces their monthly income. Bank Statement Loans provide a pathway to homeownership or refinancing by evaluating actual cash flow rather than taxable income.
- Simplified qualification process for self-employed borrowers with complex tax situations
- Option to use business or personal bank statements to verify income
- Opportunity to purchase or refinance a home without providing tax returns
Eligibility Requirements for a Bank Statement Loan
To qualify for a Bank Statement Loan, you must meet specific criteria:
– Credit Score: Most lenders require a minimum credit score of 640 with more favorable rates and terms available for scores above 680.
– Self-Employment History: You must have at least 2 years. Some lenders may allow 1 year of self-employment with recent work experience in the same industry.
– Account Types: You may use personal checking or business checking account statements.
– Down Payment: You should expect to provide a down payment of 10-20%.
– Income Calculation: Lenders determine your income with an expense factor on the deposits to estimate your net income.
The Bank Statement Loan Application Process
The application process involves several steps whether a refinance or purchase:
- Pre-qualification: Discuss financial situation with a lender to determine eligibility.
- Documents: Provide 12-24 months of bank statements and other requested documents.
- Loan application: Submit formal application and supporting documents.
- Underwriting: The lender reviews the application and may request more information.
- Approval and closing: Once approved, you receive loan terms and schedule a closing.
Bank Statement Loan Mortgage Rates and Terms
Interest rates for Bank Statement Loans are typically higher than those of conventional mortgages due to the increased risk associated with non-traditional income verification. How much higher? They're approximately .75%-1.50% higher depending on your credit score, loan amount, and loan-to-value ratio (LTV). The best rates I see tend to be at 70 LTV and less.
Loan Term Options:
- 30-year fixed-rate mortgages
- Interest-only options available if you have 700+ credit. This can lower your monthly payment but your principal balance stays the same until the loan is re-amortized.
How to Lock in the Best Bank Statement Loan Rate
To obtain the most favorable interest rate on this self-employed mortgage:
- Improve your credit score before applying
- Aim for a lower loan-to-value ratio by making a larger down payment than a low down payment of 10%-15%
- Negotiate with the seller to credit you 1-2% for closing costs which may be used to pay discount points to reduce the rate
- Compare offers from other bank statement lenders
Choosing the Right Bank Statement Loan Lender
When selecting a lender for a bank statement home loan, you should consider:
- Program variations in income & expense factor calculations
- Interest rates, fees and closing credit
- Customer reviews and reputation
- Experience with self-employed borrowers
It is crucial to work with a loan originator like myself who understands the unique needs of self-employed individuals and has a track record of successfully closing non-QM loans.
Bank Statement Loan Alternatives
While Bank Statement Loans are excellent options for many self-employed borrowers, alternatives do exist:
- No Ratio Loans: These loans don't require income or employment but do require a 20% or higher down payment and higher credit scores.
- Asset Depletion Loans: This product utilizes your qualifying liquid asset balance(s) to calculate the ability to repay the loan.
- P&L Loans: These loans require 1-2 years of your profit & loss statements prepared by a CPA, CTEC, EA, or tax attorney.
- 1099 Worker Loans: These loans require 1-2 years of your 1099 statements. Ideal for freelancers, consultants and gig workers.
Success Stories: Bank Statement Loans in Action
California Tech Entrepreneur:
Sarah, a successful app developer in Silicon Valley, used a Bank Statement Loan to purchase her home in San Francisco. Despite her high income, her tax returns didn't reflect her true earning potential due to business deductions. The Bank Statement Loan allowed her to qualify based on her actual cash flow, securing a $1.2 million mortgage with a 15% down payment.
Texas Small Business Owner:
Mike, who owns a food truck business in Austin, turned to a Bank Statement Loan when he wanted to buy his first home. His seasonal income made traditional qualification difficult, but by using 24 months of business bank statements, he secured a $350,000 mortgage with competitive terms.
Exploring Your Bank Statement Home Loan Options
Self-employed individuals or business owners looking to purchase or refinance a home should consider a Bank Statement Loan as a potential solution. Complex tax situations need not prevent the achievement of homeownership goals.
Contacting a mortgage advisor to discuss individual situations is the first step towards finding a Bank Statement Loan that fits specific needs.
It is important to note that every borrower's situation is unique, and what works for one may not be the best option for another. Consultation with a qualified mortgage professional is essential to determine the most suitable loan product for specific circumstances.
Why Work With an Expert in Self-Employed Mortgage Loans?
As a licensed mortgage professional with years of experience in non-QM loan products, I specialize in helping clients such as yourself find the right solution. Bank statement mortgage loans are ideal for self-employed borrowers with regular monthly income deposits.