Bank Statement Mortgage Loans
Bank statement mortgages are very suitable for self-employed borrowers who would have acquired traditional mortgage with lot of difficulties because of their income methods. Bank statement mortgage loans for self-employed borrowers are the most popular loan program for business owners. Income tax returns are not required for bank statement mortgage loans for self-employed borrowers. The past 12 months of deposits on bank statements are averaged. The average monthly deposit is the income used. You can either use business or personal bank statements.
How Do Bank Statement Mortgages Work?
Lenders evaluate the deposits in your bank statements to calculate your average monthly income. They may also review expenses to ensure a consistent and reliable income stream. This approach clarifies your financial health and ability to repay the loan, even if your tax returns do not reflect your actual earning capacity due to business deductions and write-offs.
Bank statement mortgage loans fall in the Non-QM Loan Program. The Non-QM Loan Program is also called Out-Of-The-Box Mortgage Loan Program. This is where lenders will lend on non-traditional types of residential lending where borrowers would otherwise not qualify for a mortgage.
Gustan Cho Associates are mortgage brokers licensed in 48 states including Washington, DC. There is no other mortgage broker that are experts on bank statement loans than the team at Gustan Cho Associates.
Mortgage programs such as one day out of foreclosure, deed in lieu of foreclosure, and a short sale is now offered at Gustan Cho Associates via our correspondent lending division. Non-QM Loans are portfolio loans and cannot be sold to Fannie Mae or Freddie Mac. Click here to apply for bank statement mortgage loans
What Documents Are Required?
The way the Bank Statement Mortgage Loan Program works is in lieu of borrowers providing the following:
- two years of tax returns
- two years of W-2s
- most recent paycheck stubs
With the bank statement loan program for self-employed borrowers, all is required is 12 to 24 months of bank statements. Profit and Loss Statements of the borrower’s business prepared by the borrower’s accountant may or may not be required.
Required Documentation:
To apply for a bank statement mortgage, you typically need personal and/or business bank statements for the past 12 to 24 months, a declaration of self-employment or business ownership, and profit and loss statements, if required by the lender. Or any additional documents that prove the legitimacy of your income and business operations.
Who Qualifies for a Bank Statement Mortgage?
Bank statement mortgages are ideal for:
- Self-Employed Individuals: Including freelancers, gig economy workers, and independent contractors.
- Small Business Owners: Those who may have complex financial situations.
- Individuals with Irregular Income: These include those who receive seasonal or project-based payments.
Benefits of Bank Statement Mortgages
- Easier Qualification:
- Ideal for self-employed borrowers who struggle with traditional income documentation.
- Flexibility:
- Offers an alternative to standard income verification methods, accommodating non-traditional income sources.
- Potential for Higher Loan Amounts:
- It may allow higher loan amounts based on gross deposits rather than net income after business deductions.
Drawbacks of Bank Statement Mortgages
- Higher Interest Rates:
- These loans often come with elevated interest rates due to the increased risk for lenders.
- Larger Down Payments:
- Typically, they require down payments ranging from 10% to 20% of the home’s buying price.
- Stricter Requirements:
- They may have more stringent credit scores and reserve requirements than conventional loans.
Interested in Bank Statement Mortgage Loans? Click here.
The Eligibility Requirements on Bank Statement Mortgages
Investors who had invested in real estate before the 2008 Real Estate and Mortgage Collapse may have heard of bank statement mortgage loan programs. Bank statement mortgages were very common pre-2008 mortgage and lending era. 12-month bank statement mortgages for self-employed borrowers with no income tax required are becoming very popular at Gustan Cho Associates.
On bank statement loans, the average of the past twelve months of deposits are averaged. The average of the past twelve months of deposits is the income used. Withdrawals do not matter.
Federal income tax returns are not required. Only bank statement deposits are used. 12-month bank statement deposits are averaged, which is the monthly income. Withdrawals do not matter. The monthly deposits need to be similar and cannot be declining income.
The Return Of The 12-Month Bank Statement Only Mortgages
Sub Prime mortgage lenders and other lenders did bank state mortgage loan program lending before the 2008 financial crisis. However, after the 2008 financial crisis, all alternative mortgage loan programs abruptly halted.
Non-QM loans are not at all like hard money loans. Bank statement loans have competitive rates for borrowers with higher credit scores. There is no maximum loan limits on bank statement loans for self-employed borrowers. Mortgage rates on bank statement mortgage loans is slightly higher than traditional conforming loans. However, no income tax returns are required.
Full doc mortgages where income tax returns were required became a hurdle for self-employed borrowers when trying to qualify for a mortgage. It was mainly geared towards self-employed borrowers. The average deposit over the past 12-months is averaged. That average is the monthly qualified income. Withdrawals do not matter.
Non-QM Bank Statement Mortgages
Why is a bank statement loan non-QM? Non-QM mortgages are for individuals who cannot qualify for a traditional mortgage due to the criteria set. Because bank statement loans are based on bank statement deposits only, and the borrower doesn’t need to supply W2s or tax returns, it doesn’t fit into the traditional criteria for a loan. With a conventional loan, you need to supply income proof in the form of paystubs, W2s, and tax returns. These loans can have high limits.
Benefits of Non-QM Mortgages
Homebuyers who are self-employed borrowers can qualify for non-QM bank statement mortgages. Borrowers who earn seasonal income with many unreimbursed expenses can now qualify for bank statement loans for self-employed borrowers. Business professionals who are not consistent wage earners and have an irregular income from their businesses can qualify for bank statement loans.
Self-employed borrowers can qualify for bank statement loans with no income tax returns. 1099 wage earners no longer need income tax returns. Talk to an expert Loan Officer. Click here!
Shopping For Non-QM Mortgage Lenders of Bank Statement Mortgages
Bank statement mortgages are portfolio loans. What this means is there are no set standards of guidelines like government and conventional loans. Mortgage lenders of bank statement mortgages have their own lending requirements and can exempt or waive certain written guidelines.
It is important to find a lender that will work with you and offer you agreeable terms.
You need to look around and find a lender who will assist you in working through any issues on your bank statement and give you the best package you can get. Do not be discouraged if you get turned down initially; keep looking.
How Do Bank Statement Mortgages Work?
Although you will not need to supply paystubs or W2s, the lender will still want to see proof of income and cash flow. You will need to provide your bank statements from your personal and business bank accounts. Additionally, you will need to supply the following, but it can vary by which lender you choose. If you have assets, such as 401k, you will be asked to show proof of liquid assets.
Self-Employed Bank Statement Mortgages
If you are self-employed, you need to supply your business license. 12-24 months of your personal or business bank statements, and possibly both if required. Debt to Income Ratio of 45%-55%. A decent credit score. This can depend on what lender you go with, as each lender can have different requirements. Typically, the lender will want to see a credit score of 620.
Types of Properties Eligible Under The Bank Statement Mortgage Loans
Self-employed borrowers who do not declare a lot of income due to being self-employed and taking advantage of their business expenses can now qualify for a mortgage loan with NON-QM Loans. Bank statement mortgage loans can be used to purchase the following properties:
- Owner-occupied Single Family Home
- Second Homes
- Investment Homes
- Condominiums
- Two to Four Unit Residential Properties
- Non-Warrantable Condominiums
Types of Bank Statement Mortgage Loans Available
There are three different types of Bank statement mortgage loans. The first type of bank statement mortgage loans is where self-employed borrowers will be qualified with personal and business bank statements. It is often referred to as a Personal/Business Combined Bank Statement Mortgage loans.
Gustan Cho Associates can waive rental verification on bank statement mortgage loans. Verification of rent is normally required for all bank statement mortgage loan borrowers. However, we can waive many mandatory guidelines on bank statement loans and non-QM loans.
The second type of bank statement mortgage loan program uses business bank statements only. The deposits over the past 12 months on the business statement are averaged. Withdrawals do not matter. The third is using personal bank statement deposits. Withdrawals do not matter. Verification of rent is required on all bank statement loans.
Case Scenarios Bank Statement Mortgage Loans
Here is how Case Scenario # 1 works:
- A borrower is required to provide bank statements from the most recent 12 consecutive months
- The borrower is also required to provide a Profit & Loss (P&L) statement prepared by the borrower’s Certified Public Accountant, CPA, or a Licensed Tax Preparer
- The expenses of the borrower’s business which is shown on the P&L must be in line and reasonable considering the borrower’s type of self-employment
- The Profit and Loss Statement, P&L, will be the primary source for information to qualify the mortgage loan borrower
- The revenue from the Profit and Loss Statement, P&L will be supported by the bank statements the mortgage loan borrower provides
- The bank statements of the borrower must reflect deposits no less than 5% of the revenue stated on the P&L
- The mortgage underwriter reserves the right to request bank statements that can exceed 12 months and many times, the mortgage loan underwriter can request bank statements for 24 consecutive months
Second Case Scenario Bank Statement Mortgage Loan Program
Here is how Case Scenario #2 of the Bank Statement Mortgage Loan Program works– You Maintain Separate Personal and Business Accounts
No Profit and Loss Statement or P&L Statement is required. Only your bank statements will be considered to determine your eligibility for the Bank Statement Mortgage Loan Program. The borrower provides personal bank statements from the most recent 12 consecutive months and business bank statements from the most recent three months (to verify the maintenance of separate accounts.
Bank statement mortgage loan program for business owners or self-employed borrowers are the most popular no-income documentation mortgage loan option in the nation. Gustan Cho Associates are mortgage brokers licensed in 48 states including Washington, DC.
Annual bank deposits are averaged to determine the borrower’s monthly income using bank statements. The mortgage underwriter reserves the right to request bank statements for additional 12 consecutive months if the borrower’s bank statement does not seem solid. If an optional Profit and Loss Statement, P&L prepared by a CPA or a Licensed Tax Preparer is provided, that will determine the borrower’s monthly income. Click here to apply for bank statement mortgage loans
Here is how Case Scenario 3 of the Bank Statement Mortgage Loan Program Works– Borrowers Will Only Be Required To Provide Business Bank Statements to Qualify for the Bank Statement Mortgage Loan Program
- Borrower to provide business bank statements from the most recent 12 consecutive months
- Borrower to provide a Profit & Loss Statement, P and L Statement, prepared by a Certified Public Accountant, CPA, or a Licensed Tax Preparer
- The business bank statements of the Borrower must reflect deposits no less than 5% of the revenue stated on their business Profit and Loss Statement, the P&L
Lending Guidelines on Bank Statement Mortgage Loans
The Bank Statement Mortgage Loan Program is a fairly new lending program that is becoming increasingly popular. It is mainly for self-employed borrowers who take advantage of the loopholes by writing off business expenses. It helps these borrowers limit their tax liabilities. However, it hurts them to qualify for mortgage loans.
You will need to show two years of self-employment history. You will also need to show that you have enough cash or other cash funds to cover your mortgage payments for several months. A profit and loss statement for the business. You may be asked to get a letter from your accountant to show your business expenses. You may be asked for independent contractor documentation. If you put down less than 20%, you will need to pay for Private Mortgage Insurance.
What Are Lenders Looking For Borrowers of Bank Statement Mortgage Loans
Lenders who originate and fund bank statement mortgage loans look for strong credit profile borrowers. I will carefully look at borrowers’ bank statements for overdrafts and non-sufficient funds on their bank statements and the history of their bank statements. Overdraft Protection is not viewed favorably by mortgage underwriters. One or two overdrafts in a calendar year may not be a deal killer. However, any more overdrafts beyond three may not be permitted.
The lender wants to ensure that you have enough stability in your business to support repaying the loan. Because these loans are a little bit riskier for lenders, they may require a larger down payment and interest rate.
How do Lenders process Bank Statements Mortgage Loans
Loan officers and mortgage processors should carefully analyze and review overdrafts and non-sufficient funds on personal and business bank statements before submitting the loan file to underwriting.
How Lenders Underwrite Bank Statement Mortgages
The underwriter will check your bank statements to see if there are any unexplained gaps in your income history. If it is something such as season work, you will need to explain this to the lender. Bank statements are also used to check for potential money laundering, which is illegal money-making income. In order to check for this, they look for any deposits or withdrawals that are red flags, or actions that may be used to hide income. Click here to find a lender for bank statement mortgage loans
Frequently Asked Questions (FAQs)
- What are Bank Statement Mortgage Loans?
Bank Statement Mortgage Loans are mortgage products where a borrower’s income is verified using bank statements instead of traditional income documentation like tax returns or pay stubs. - Who are Bank Statement Mortgage Loans suitable for?
Bank Statement Mortgage Loans are often suitable for self-employed individuals, freelancers, contractors, and business owners with non-traditional income sources or irregular income patterns. - How do Bank Statement Mortgage Loans work?
With Bank Statement Mortgage Loans, lenders review the borrower’s bank statements over a period, typically 12 to 24 months, to determine their average monthly income. This income is then used to assess the borrower’s ability to repay the loan. - What are the eligibility requirements for Bank Statement Mortgage Loans?
Eligibility requirements for Bank Statement Mortgage Loans can vary depending on the lender. Generally, borrowers need a strong credit history, sufficient assets, and a stable banking history. - What documentation is required for a Bank Statement Mortgage Loan?
While Bank Statement Mortgage Loans require less traditional income documentation, borrowers typically must provide several months of bank statements, proof of identification, proof of assets, and other supporting financial documents. - Are Bank Statement Mortgage Loans riskier for lenders?
Bank Statement Mortgage Loans may carry higher risks for lenders than traditional loans because they rely on bank statements rather than verified income documentation. As a result, interest rates and fees may be higher. - What are the benefits of Bank Statement Mortgage Loans?
Bank Statement Mortgage Loans offer flexibility for borrowers with non-traditional income sources or irregular income patterns. They provide an alternative financing option for those not qualifying for traditional mortgages. - Are there any downsides to Bank Statement Mortgage Loans?
While Bank Statement Mortgage Loans offer flexibility, they may come with higher interest rates, stricter eligibility requirements, and lower loan limits than traditional mortgages. - How long does it take to get approved for a Bank Statement Mortgage Loan?
The approval process for Bank Statement Mortgage Loans may differ based on the lender and the complexity of the borrower’s financial situation. It may take longer compared to traditional mortgages due to the need for additional documentation review. - Can Bank Statement Mortgage Loans be used for different purposes?
Yes, Bank Statement Mortgage Loans can be used for various purposes, including purchasing a home, refinancing an existing mortgage, or obtaining a cash-out refinance. The specific terms and conditions could fluctuate based on the lender and the loan type.
Homebuyers who are self-employed borrowers with irregular or inconsistent income and are interested in qualifying for Bank Statement Mortgage Loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available seven days a week, evenings, weekends, and holidays. We have a national reputation for not having lender overlays on government and conventional loans. We also have dozens of lending partnerships with non-QM wholesale lenders.
