A bank statement loan is a financial tool that allows borrowers to verify income using bank statements instead of tax returns and W-2 forms. It's common for borrowers to verify their income using these more traditional indicators of financial health, but not everyone has access to this documentation. Bank statement mortgages provide an alternative for people who work as self-employed borrowers, small business owners, entrepreneurs, and freelancers.
Bank statement mortgage options can help you achieve your homeownership goals, regardless of your occupation. This program allows professionals such as consultants, doctors, lawyers, and real estate investors to qualify for a home loan. There are no additional costs to worry about when using a bank statement loan, and the application process is easier than you think.
Want to know if a bank statement loan makes sense for you? Keep reading to find out. And be sure to contact one of our salary-based mortgage consultants with any questions.
Putting bank statement loans in context
It's no secret the American workforce is becoming increasingly gig-oriented and freelance-based. As workers transition from working for one employer to working for themselves, they must have personalized mortgage options to achieve their goals. A bank statement loan does exactly that.
Think about the challenges you would face if you tried obtaining a traditional mortgage right now. A lender would request specific documentation, including W-2s and tax returns. You likely wouldn't make it far in the loan process if you couldn't provide this info.
Bank statement loan programs are a game-changer for entrepreneurs and self-employed borrowers everywhere. There's no need for sifting through old financial records you aren't even sure you have. Instead, you provide recent bank statements showing regular sources of income.
More borrowers are opting for bank statement loan programs every day. Not only does this solution increase your approval chances, but it also keeps you on track with your work. After all, your time should be spent running your business and doing what you enjoy, not running down paperwork for a loan.
Don't give up on your home buying aspirations if you feel that your documentation isn't sufficient. There are different ways to qualify for a mortgage, and you don't have to follow the same process as your friend or neighbor. You'll find that a bank statement mortgage is a viable option for many self-employed borrowers.
Self-employed mortgage requirements
Credit scores of 600+
Maximum debt-to-income ratio (DTI) of 50%
Employment verification from clients or a CPA
Two years of personal income tax returns
Two years of business tax returns, including schedules K-1, 1120, and 1120S
Bank statements showing you have access to sufficient funds
Year-to-date profit and loss statement (P&L)
Bank statement loan benefits
You'll find that bank statement loan programs offer many benefits. Here are a few reasons to explore this type of mortgage.
Finance owner-occupied homes, second homes, and investment properties
While some loan options require you to live in the residence you're financing, that's not the case with a bank statement mortgage. You can obtain a mortgage for a primary residence, second home, or investment property. You may consider more than one bank statement loan at once, depending on your goals.
Borrow up to 80% of the home's value and up to 90% with proper reserves and credit
Bank statement mortgage loans provide flexibility for any qualified borrower. Credit requirements vary by lender, so contact a salary-based mortgage consultant for more details.
No tax returns required
As mentioned above, you don't have to spend valuable time searching for tax returns and other ‘traditional' documentation often associated with home loans. Instead, your lender will request business tax returns and bank statements, among other info.
No paying private mortgage insurance (PMI)
Some borrowers spend years trying to get rid of PMI. Selecting a bank statement loan eliminates this often frustrating expense and adds money to your budget. You could save hundreds a month without PMI, especially if you buy a higher-priced home.
Potential bank statement mortgage disadvantages
A bank statement mortgage isn't the right move for every borrower. That's why it's also critical to understand the downsides of the loan option.
May have a higher interest rate
Bank statement loans often carry higher rates than other programs. That could be a deal-breaker if you're on a tight budget and can't afford to overspend on the house.
May need a sizable down payment
The best candidates for bank statement loans typically have large cash reserves. You'll need to be willing to put those funds toward a down payment.
Your lender will use bank statements instead of traditional proof of income to verify your ability to repay a loan. So, if you've been in business for two or more years, it's worth considering the following steps to begin the mortgage process.
Contact a salary-based mortgage consultant
Our salary-based mortgage consultants will listen to you before deciding whether a bank statement loan is a sensible option. If it is, they'll let you know and get to work creating a custom loan. There's never any pressure during the process, and you won't have to pay upfront or hidden fees.
Must be in business for two or more years
Much like lenders prefer working with borrowers who have been in an industry for at least two years, they also feel more comfortable working with self-employed folks who have owned their business for a while. You may struggle to qualify for a bank statement loan if you just started your business several months ago.
Provide all necessary documentation
Before talking to a lender, spend some time gathering info such as your business license, 12 months of personal bank statements, 24 months of business bank statements, expense ratio, and a signed CPA letter stating you are still in business. Be prepared to provide additional documentation upon request, as some bank statement lender requirements vary.
Receive your custom, low-rate loan
Once you talk to a salary-based mortgage consultant and provide the above documentation, your loan will go through underwriting. You can ensure things go as smoothly as possible by being available to answer any questions. After the underwriter reviews and approves your file, you'll receive a custom loan to help you land your dream home.
Those who benefit most from a bank statement mortgage often have unique financial needs. If your question isn't answered in the below FAQ, please don't hesitate to reach out.
What type of documentation is required for a bank statement loan?
Borrowers must provide their business license, two years' worth of business bank statements showing the necessary funds for a down payment, and employment verification, among other info.
Will the bank verify the bank statement prior to a loan application?
Yes, your financial institution could verify your bank statements before you apply. Banks have different processes, so it's worth seeing how yours works.
What do underwriters look for in a bank statement?
Underwriters want to see regular sources of income in your bank statements. While you may not have paychecks from an employer, a bank statement will show how much money you're earning from a business. Unstable income could be a sign of seasonality in your business (landscapers typically earn most of their income in spring and summer and, therefore, might not have much revenue to show in the fall and winter months.
Is it difficult to get a bank statement loan?
Every borrower's experience is different. If you've been in business for at least a few years and have the funds for a large down payment, there's a good chance you'll qualify for a bank statement mortgage. However, a lender may deny your application if you just started your business or have trouble gathering the necessary documentation for whatever reason. Either way, it's worth having a conversation with a salary-based mortgage consultant.