Bank Statement Loan

What is a Bank Statement Loan?

A Bank Statement Loan is typically for self-employed individuals and borrowers with non-traditional income. This type of loan is for those who may not have the standard income documentation required for a conventional mortgage.

Our bank statement loans allow borrowers to use deposits from personal and/or business bank statements as proof of income. We also allow borrowers to combine personal and business accounts, and still use W2 income from a co-borrower.

Qualifications

When it comes to obtaining a bank statement loan, there are a few important qualifying standards.

Credit scores generally need to be good. And pay history is important as well.

Document at least 12 months of bank statements but some options may ask for 24 months of statements. Personal or Business bank statements can be used. The lender will then average out the deposits to calculate a monthly income.

Down payments of at least 10% but many clients will typically put down 20% of the purchase price. In addition to the down payment, the lenders will also want to ensure that the down payment will not affect the daily operations of the business.

Advantages of a Bank Statement Loan

Lenders consider the cash flow in bank statements rather than formal income documentation. Self-employed borrowers have the advantage of using both personal and business bank statements to prove their income when applying.

Bank statement loans are more flexible when it comes to calculating income. We can use either personal or business bank statements, but we can also combine those with traditional W2 income or other sources if those are deposited in different accounts. This means that self-employed individuals can include all of their income streams to demonstrate their ability to make monthly mortgage payments.

By considering multiple sources of income, the bank statement program offers a more accurate representation of a borrower’s income and overall financial stability. This flexibility in income calculation increases the chances of loan approval for self-employed individuals who may not meet the rigid guidelines of traditional mortgage lenders.

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

However, like all loan types, there are potential downsides. Borrowers might face higher interest rates compared to conventional loans. It’s essential to weigh the benefits against potential higher monthly payments. Also, not all lender offers these types of loans so if you’re told you don’t qualify, it may be because that lender only has traditional loan options.

Higher Interest Rates Than Conventional Mortgages With Traditional Underwriting Guidelines

Bank statement program home loans often come with higher interest rates compared to conventional mortgages with traditional underwriting guidelines. These rates can vary depending on the lender you choose.

The reason for a higher rate is that these are what are called “portfolio” products. The lenders are using their own rules and not following traditional Fannie Mae guidelines. The investors behind the lenders expect a certain return in order to take on the risk.

It’s important to note that while bank statement program home loans generally have higher interest rates, the specific rates can vary from lender to lender, and typically aren’t substantially higher than a conventional loan. Comparison shopping and exploring different lender options can help borrowers find the most competitive rates available.