What is a Bank Statement Loan?

A Bank Statement Program Home Loan offers several benefits for self-employed individuals and borrowers with non-traditional income., including 1099 and gig workers.

One of the main advantages of a bank statement program loan is that it allows borrowers to use their personal and/or business bank statements as proof of income. Generally, you are able to count 30-90% of your deposits based on the type of business you have and your amount of fixed overhead expenses.

Bank statement loan amounts can go up to $3 million, and down payments range from 15-30%.

Qualifying for a Bank Statement Program Home Loan

When it comes to qualifying for a bank statement program home loan, the requirements are different from traditional mortgages. The main factors the lender considers is the borrower’s bank statements. We average the last 12 months of bank deposits. Then, we remove transfers and returns and calculate your average monthly income.

Credit Scores and Income Ratio Requirements

Although we can go down to a 600 score, with this program, credit scores are important. The better your score, the lower your rate and the lower your down payment will be.

Income ratios, on the other hand, are used to assess a borrower’s ability to repay the loan. This ratio compares the borrower’s total monthly debt payments to their monthly income. For self-employed borrowers, instead of relying on traditional mortgage requirements such as tax returns and pay stubs, bank statement programs allow self-employed individuals to use personal bank statements or business bank statements to verify income.

Types of Income Used to Qualify for a Bank Statement Program Home Loan

When applying for a bank statement program home loan, there are various types of income that can be used to qualify. These loans are specifically designed for self-employed borrowers who may have non-traditional income sources. Here are some types of income that can be considered:

1. Self-employment income: Self-employed individuals can use their business or personal bank statements to demonstrate their monthly income. This can include profits from their business, consulting fees, freelance income, or any other income generated through self-employment.

2. Other sources of income: In addition to self-employment and rental income, other sources of income such as alimony, child support, disability benefits, retirement or investment income can also be considered for a bank statement program home loan. It’s important to provide documentation and proof of these income sources.

Documentation Requirements for Self-Employed Borrowers

Self-employed borrowers applying for a bank statement program home loan need to provide specific documentation to demonstrate their income and financial stability. Here are the key documents typically required:

1. Bank statements: Applicants need to provide several months of personal or business bank statements. This assists lenders in evaluating the borrower’s cash flow and ability to make mortgage payments.

2. Business license/Formation Documentation: A copy of the borrower’s business license and/or formation documents is crucial to confirm that the self-employed individual is authorized to operate their business and they have at least a 2-year history.

3. Balance sheet: Lenders may request a balance sheet to gain insight into the borrower’s business assets, liabilities, and net worth.

4. Year-to-date profit and loss statement: A year-to-date profit and loss statement helps lenders assess the borrower’s current income and business performance.

These documentation requirements are essential for self-employed individuals seeking a bank statement program home loan. By providing these documents, borrowers can demonstrate their financial stability, income sources, and eligibility for the loan.

Investment Properties are Eligible for Bank Statement Program Loans

Investment properties are eligible for financing under the Bank Statement Program Loans, providing flexibility for self-employed individuals and business owners who may have difficulty documenting their income through traditional means. To qualify for this loan program, borrowers must meet certain eligibility criteria.

Overall, the Bank Statement Program Loans offer a viable solution for self-employed individuals and business owners looking to purchase or refinance investment properties. By providing bank statements and supporting documentation, borrowers can demonstrate their income and cash flow, making homeownership more accessible for this demographic.

Disadvantages of a Bank Statement Program Home Loan Compared to Traditional Mortgage Loans

However, like all loan types, there are potential downsides. These loans require a higher down payment and the interest rates are slightly higher compared to conventional loans. It is important to realize though, many business owners will never qualify for a traditional mortgage using their tax returns. Bank Statement Loans are a great path to home ownership.