Back in the early 2000s, we used to have stated income programs that relied on credit scores and a stated income by the borrower. Unfortunately, these types of loans do not exist anymore due to the housing crash in 2008. Fortunately, bank statement loans have taken the place of stated income loans as an alternative to providing W2s, tax returns, or pay stubs. These are known as non-qualified mortgages, Non-QM. This type of loan offers expanded criteria to allow for other forms of documentation to show the ability to service debt. Effectively, we are using the bank statements to verify the borrower’s income to justify making the mortgage payment on time.

Bank Statement Loans

Self-employed? Just because you are self-employed does not mean you can’t get a mortgage. Our program does not require any tax returns or financial statements to purchase a new home or refinance an existing one. To qualify, we need only 12 months or 24 months of bank statements. This type of program is perfect for entrepreneurs, business owners, consultants, realtors, restaurant owners, and contractors.

What is a bank statement loan?

Back in the early 2000s, we used to have stated income programs that relied on credit scores and a stated income by the borrower. Unfortunately, these types of loans do not exist anymore due to the housing crash in 2008. Fortunately, bank statement loans have taken the place of stated income loans as an alternative to providing W2s, tax returns, or pay stubs. These are known as non-qualified mortgages, Non-QM. This type of loan offers expanded criteria to allow for other forms of documentation to show the ability to service debt. Effectively, we are using the bank statements to verify the borrower’s income to justify making the mortgage payment on time.

Can I get approved for a loan with bank statements?

If you own your own business, are an entrepreneur, a gig worker, a realtor, or are self-employed this is a great option. Bank statement loans are a type of loan based on your business or personal bank statements versus tax returns or employer verification. The flexibility these loans give you is nice because it’s not traditional and typically comes with a higher interest rate to mitigate the lenders’ risk.

What documents are required for a bank statement loan?

For traditional qualified mortgages, lenders require tax returns for 2 years, copies of W2 statements, and 2 to 3 months’ bank statements along with at least 30 days worth of pay stubs. Bank statement loans fall under the non-qualified mortgage category and require 12 to 24 months of bank statements.

Do lenders qualify 100% of your bank statement deposits?

Lenders typically discount the top line deposits by 30% to 50% depending on the nature of the business. For consulting businesses, lenders discount the revenue by 30% meaning if your showing $100,000 per month in deposits then $70,000 of the revenue is applicable towards qualifying your loan. This amount is used to determine whether you can service the debt. For product-based businesses, lenders discount the revenue by 50%. 

Should I disclose all my bank accounts to the lender?

It’s best to disclose the bank statements that are going to be used to qualify your income. If you have any insufficient funds or discrepancies that could make an underwriter question your bank statement, it’s recommended not to submit those. Only use the bank statements which will be used to verify your assets for reserve requirements and income.

Are spending habits considered by underwriters?

Underwriters review bank statements to determine if the borrower can afford the monthly mortgage being applied for. These spending habits help the underwriter draw conclusions on your monthly ending cash flow.

How long does it take to get approved for a bank statement loan?

Typically, underwriting takes 2 to 3 days depending on the market conditions. During times of lower interest rates, you can see underwriting take up to 5 maybe even 7 days. This process also includes verification of information provided, proper escrow, and title procedure to ensure a clear chain of title.

Who is a bank statement loan designed for?

These types of loans are great for people who do not have a standard 9 am to 5 pm job or someone who cannot get proof of income from an employer.

People that may want to consider bank statement loans are:

• Doctors
• Small business owners
• Lawyers
• Real estate investors and agents
• Freelancers

Pros of bank statement loans:

1. Higher debt to income ratio, up to 55%
2. Higher loan amount limits
3. Can be used on investor properties, 2^nd homes, and primary residence
4. No tax returns needed

Cons of bank statement loans

1. Higher interest rates from lenders to mitigate risk
2. Larger down payments are required
3. A specialty lender is required, not all banks offer this solution

How difficult is it to get approved for a bank statement loan?

First, you need strong monthly cash flow depositing into a bank account. Second, depending on your credit score you may or may not get approved. The minimum FICO score is 620 required to get approved and comes with a much higher interest versus a borrower who has a 720 FICO score.

What do lenders look for on your bank statements?

Lenders review bank statements for a variety of reasons. First, they like to see if you have the proper down payment needed for the transaction of a purchase loan. Second, they look for overdrafts how many, and how often. Third, regular monthly deposits. Fourth, they look for assets to ensure there is at least 6-month worth of reserves available. Finally, are your funds seasoned meaning have they been in your account for a short or long period of time? Seasoning of funds should be at least 3 months. 

Why do lenders/banks ask for bank statements?

Bank statements are an alternate way to get approved for a loan compared to traditional mortgages. Bank statements tell the financial health of a potential borrower. It helps lenders mitigate risk when lending. Additionally, it helps reduce fraud. Essentially, bank statements help lenders get a summary of your deposits and withdrawals.

How long have bank statement loans been available?

Since the mortgage crash of 2008, lenders have eliminated stated income loans for obvious reasons. Recently, lenders have identified a niche in borrowers specifically self-employed borrowers looking for loans. The demand has been so big that lenders have created bank statement loans around the year 2017. In 2021, there is only a handful of lenders focusing on this niche. It’s unknown how long bank statement loans will be available so please check with your lender or contact an advisor to find the right solution for you.

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