Bank Statement Mortgages For Self-Employed Borrowers
In this blog, we will cover and discuss bank statement mortgages for self-employed borrowers. In the past, self-employed borrowers always had an issue qualifying for mortgage loans to qualify for traditional mortgage loans. Self-employed borrowers have the benefit of writing off more than the average W2 income wage earner unreimbursed business expenses.
Bank Statement Mortgage Loans For Self-Employed Borrowers
With the above case scenarios, the documents provided to the lender need to make sense. It needs to support the size of the requested mortgage loan amount. The underwriter must feel comfortable that the borrower can repay the mortgage loan. Any irregularities and inconsistencies will prompt the mortgage loan underwriter for additional documents to be provided by the borrowers, which may be tax returns or other supporting facts.
How Does The Bank Statement Loans For Self-Employed Borrowers Work
The Bank Statement Mortgages have been a hit since it was launched. Even if the borrower were to earn his or her income part of the year, as long as the borrower has maintained bank statements for 12 months will be used.
Gustan Cho Associates uses 12 months of bank statement deposits as qualified income for bank statement loans for self-employed borrowers. No income tax returns are required. Withdrawals does not matter.
They need to use the same bank statements for 12 months to document their deposits and income. Bank Statement Mortgages will secure a self-employed borrower a mortgage loan. There are no loan limits. There is no private mortgage insurance required. Talk to an expert Loan Officer for Bank Statement Loans. Click here!
How Bank Statement Mortgages Benefit Self-Employed Borrowers:
Income Verification:
Bank Statement Mortgages either use 12-24 months’ worth of bank statements to verify incomes or a 12-24 month period. This allows them to ascertain cash flows instead of relying on tax returns.
Simplified Documentation:
Instead of full tax returns, profit and loss statements, and balance sheets, self-employed individuals need only provide their bank statements.
Flexible Income Calculation:
The lenders may calculate the borrower’s income using an average monthly deposit amount from the past twelve to twenty-four months as indicated through bank statement deposits.
Those seeking this option can opt for both personal and business bank statements depending on what suits them better.
Key Features of Bank Statement Mortgages for Self-Employed Borrowers:
Loan Amounts:
The size of loans varies greatly; some banks even extend it up to $2-3mln depending on borrower’s financial profile and lender’s criteria.
Down Payment:
Usually it demands higher amounts than those associated with conventional loans, thus often reaching 10-20% of total purchase value.
Credit Requirements:
Minimum credit score is still important though there is room for some interpretation. While most lenders prefer a credit score above 620-660; there are those who will go even lower in special circumstances.
Interest Rates:
This product usually carries higher interest rates compared to traditional home mortgages due to lender perception that risk level has increased significantly.
Reserve Requirements:
To demonstrate an ability to make mortgage payments going forward these may be few months’ worth or more than mortgage payments in reserve requirements that one must show.
Steps to Obtain a Bank Statement Mortgage for Self-Employed Borrowers:
Find a Suitable Lender:
Get a list of banks that have expertise in bank statement mortgages. It is not every lending institution that offers this product, therefore it’s crucial to look for a lender who is experienced in dealing with self-employed borrowers.
Prepare Your Bank Statements:
Organize your personal and/or business bank statements for the past twelve to twenty four months by ensuring the revenues are clearly indicated.
Review Your Financial Profile:
Before you can proceed, ensure your credit score is in good standing while also having access to enough down payment cash and other supporting documents as required by the lender such as business licenses and CPA letters among others.
Submit Your Application:
After selecting one lender, complete the mortgage application process by providing copies of your bank statements and any other requested forms.
Underwriting Process:
The lenders will evaluate your financial status through bank statements hence determining an average monthly income amount or rating of all finance issues together
Approval and Closing:
Once approved, continue with the closing procedure similar to other types of mortgage; be prepared with funds for down payment and closing costs.
How Do Mortgage Lenders Calculate Income For Self-Employed Borrowers?
Mortgage lenders use adjusted gross income on traditional mortgage loan income calculations. Self-employed borrowers generally have low adjusted gross income due to the substantial number of unreimbursed business expenses. In the following paragraphs, we will be covering qualification requirements and guidelines on bank statement mortgages for self-employed borrowers. Click here to find a lender for your bank statement loans
Can I Get a Mortgage Based on Bank Statements and Not Income?
Trouble Qualifying with Income Requirements? Are you self-employed and looking for a new home? Maybe you have applied for a mortgage in the past and were declined due to the fact that you can’t prove your actual income via regular paystubs or W2s. A Bank Statement Loan, also called a stated income loan or self-employed mortgage, might be your best option.
How to Ensure Your Bank Statements Will Get You Approved!
When applying for a bank statement loan, you will need to supply a bank statement. In order to get your bank statement, it’s as simple as calling your bank or printing them off from online banking. The lender is checking all of your deposits and withdrawals. Additionally, they will see this if you have insufficient funds or charges. A lender does not want to see inadequate funds charges. The lender will ask to see anywhere from 6 months to 24 months of bank statements.
Seasoned Cash Guidelines for Bank Statement Mortgages
Sourced cash refers to ensuring that it’s clear where the money came from. Seasoned cash is when the money has been in your account for longer than a month. This is to check to see if you have enough to cover the loan repayment. If you have recently taken on more debt, they will factor this into your debt-to-income ratio.
What Are Red Flags Mortgage Underwriters Looking For in Bank Statement Mortgages
Underwriters will find out if you have any large deposits, and if you have, they will want an explanation. For example, if you have recently sold your winter car, and the car was sold for $9,000.
If you just have a large deposit in your account, it would be a red flag. However, if it is a legitimate deposit, you can show the title transfer, sale slip, etc.
A gifted deposit is a financial gift from family or friends. If you have had one of these, and it shows on your bank statement, it is best to provide a letter of explanation, signed by the gifter. It is important to consider what will show up on your bank statements if you plan to get a bank statement loan so that it doesn’t delay the process.
Who Offers Bank Statement Mortgages?
Gustan Cho Associates is one of the largest non-QM mortgage brokers in the nation with over 190 lending partnerships with wholesale mortgage lenders including several dozen non-QM wholesale lenders of bank statement mortgages. Besides Gustan Cho Associates there are many banks and credit unions that offer bank statement mortgages.
Self-Employed and 1099 Wage Earner Mortgage Loans
Doctors, lawyers, contractors, and business owners are all individuals who might work for themselves and have trouble showing their income in order to get approved for a mortgage. This is because the income on tax returns is adjusted for tax deductions and write-offs, which help the individual at the time. However, when trying to get approved for a home loan, it becomes a problem. This is why bank statement mortgages exist. Talk to an expert Loan Officer. Click here!
Frequently Asked Questions (FAQs)
- What is a bank statement mortgage?
A bank statement mortgage is a loan that permits self-employed borrowers to qualify for a mortgage using their bank statements instead of traditional income verification methods like tax returns and W-2s. - How do bank statement mortgages work?
Bank statement mortgages evaluate the deposits in your bank account over a specified period, usually 12 to 24 months, to determine your income. Lenders analyze these deposits to calculate your average monthly income. - Who qualifies for a bank statement mortgage?
Self-employed freelancers, independent contractors, and small business owners who have difficulty proving their income through traditional documentation are typically eligible for bank statement mortgages. - What documents are required for a bank statement mortgage?
You will need to provide:
* Personal and/or business bank statements for the past 12 to 24 months.
* Profit and loss statements (sometimes required).
* A declaration of self-employment.
* Any additional documentation the lender may require to verify your business operations. - How many months of bank statements are needed?
Some lenders require 12 to 24 months of consecutive bank statements. The exact number of months depends on the lender’s requirements and your financial situation. - Can both personal and business bank statements be used?
Yes, both personal and business bank statements can be used. Lenders typically analyze the business bank statements to determine business income and personal bank statements to confirm that income is being transferred to personal accounts. - What are the benefits of a bank statement mortgage?
Easier Qualification: Allows self-employed borrowers to qualify based on actual income deposits.
Flexibility: Provides an alternative to traditional income documentation.
Potentially Higher Loan Amounts: This may allow for higher loan amounts based on business revenue rather than net income after deductions. - What are the drawbacks of a bank statement mortgage?
Higher Interest Rates: These loans usually have higher interest rates than traditional mortgages.
Larger Down Payments: Lenders may need a larger down payment, typically 10% to 20%.
Stricter Requirements: Lenders may have a stricter credit score and reserve requirements. - Do bank statement mortgages have a higher rate of interest?
Bank statement mortgages generally carry higher interest rates than conventional loans because of the greater risk associated with non-traditional income verification. - How is income calculated for a bank statement mortgage?
Lenders calculate income by averaging the deposits on your bank statements over the specified period. Some lenders may only count a percentage of the total deposits to account for business expenses. - What credit score is needed for a bank statement mortgage?
The required credit score varies by lender, but a minimum score of 600 to 680 is generally needed. Higher credit scores cause better loan terms and lower interest rates. - Are there specific lenders that offer bank statement mortgages?
Yes, not all lenders offer bank statement mortgages. It’s important to work with lenders who specialize in this type of loan or have specific programs for self-employed borrowers. - Can I refinance with a bank statement mortgage?
Yes, you can refinance with a bank statement mortgage. The process is similar to purchasing a home with this type of loan, requiring bank statements to verify income. - Is a down payment required for a bank statement mortgage?
Yes, a down payment is typically required. The amount can fluctuate but typically falls between 10% to 20% of the home’s buying price.
For further questions about bank statement mortgages, you can contact us at GCA Mortgage Group by calling 800-900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!
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