Bank statement loans are used to be called “stated income loans”. In the early 2000s, a borrower could often just state their income with no verification of any kind and get a loan.
Today’s “stated income loans” are different from the past. New stated income loans are often referred to as “bank statement loans”, “alt doc loans”, or “alternative income verification loans”. Or some lenders use the name “ self-employed mortgage”.
The bank statement mortgage requires you to prove your income as a conventional mortgage does, the difference is you can do it without the tax returns or pay stubs. This alternative way is to use 12 or 24 months of bank statements ( personal or business bank statements), to verify your actual income.
General requirements (vary from lenders and personal financial situations):
- Credit score: 640 +
- LTV (loan to Value): up to 90%
- Loan amount: up to 3 million
- Self-employed borrower ( two years of business history)
- Minimum 12 months or 24 months of consecutive bank statements
- Minimum 12 months of reserves (may be required)
Who are candidates for bank statement mortgages?
If you’re a business owner or an independent contractor without a salaried income, and you can’t get qualified for a conventional loan. Or if you are self-employed and have large tax deductions that make your income look much smaller than it really is, then the bank statement loan program can help. This type of loan is typically used by:
- Self-employed
- Independent contractors
- Workers with seasonal income
- Gig workers or freelancers
- Workers with irregular income
- Full-time real estate investors ( who may qualify for bank statement loans based on revenue from their portfolio)
What is a bank statement loan?
With a bank statement loan , you won’t need to provide your lender with some of the typical financial documents needed for a conventional loan, such as W-2s and tax returns. Instead, you’ll use bank statements to prove income. This can be helpful if your income is inconsistent, your employer doesn’t issue traditional paychecks or you claim significant tax deductions.
How do bank statement loans work?
In bank statement loans, the lender uses bank statements to analyze a borrower’s income. They usually request 12 or 24 months bank statements. They will also ask for your business information, such as P/L ( profit and loss statement), and expenses.
Lenders will look at a borrower’s bank over a 12 to 24-month time period to determine the borrower’s net income, which is the amount of money earned after the borrower has paid taxes and business-related expenses.
Lenders will also want to know the type of business, the number of employees, and if the business has a physical location, etc, to determine the expense factor.
Downsides of bank statement mortgage
Higher interest rate, larger down payment request, and maybe prepayment penalty.
Bank statements may offer greater flexibility, but they also come with downsides. They usually have higher interest rates, and some of them may have a prepayment penalty.
Please pay special attention to this, if you are considering refinancing in the future, make sure to ask if your bank statement mortgage comes with a prepayment penalty. If they do, this means if you want to refinance, you may have to pay the prepayment penalty first to be able to refinance to a conventional loan or lower interest rate.
The size of the down payment. Depending on your credit score, they might request a higher down payment. Even though you can qualify with a 620 FICO, if you have a higher than 700 credit score, you can get a better rate and terms.
Talk to several mortgage companies or loan officers to compare their loan rates, terms, and costs, and choose the one that best fits your needs.
Who offers bank statement loans?
Bank statement loans are part of the “non-qualified mortgage” category (Non-QM), since they don’t meet with the conforming loan standards set by Fannie Mae and Freddie Mac.
Not all lenders offer bank statement mortgages, many banks and credit unions choose not to offer these types of loans due to the higher risk.
The best way to find bank statement loans is through a mortgage broker.
I am a loan officer who works with a mortgage broker office, I have several lenders who offer bank statement loans. According to your financial situation, I can offer the loan program that best fits you. Contact me if you want to know more about this loan program.
My last advice, make sure to apply for a conventional loan first !!!
Only if you are not able to get a conventional loan program, you consider getting a bank statement loan.
