Learn About Bank Statement Loans

A bank statement loan is a type of mortgage that enables self-employed individuals and those with non-traditional income sources to qualify for a home loan using just bank statements for income verification instead of traditional documents like paystubs, W-2s and tax returns.

This type of loan is particularly useful for people whose tax returns may not accurately reflect their true income due to significant deductions and write-offs.

Couple-reviewing-paperwork-with-professional.png

How they work

  1. Instead of W-2 forms and/or tax returns, a borrower's bank statements (typically 12-24 months) are analyzed to determine the average monthly deposits from various sources.
  1. Focus on Cash Flow: The emphasis is on the consistent cash flow reflected in the bank statements, evaluating regular deposits, account balance consistency, and overall financial health.
  2. Unlike traditional mortgages that often rely on automated underwriting, bank statement loans often involve manual calculations on the income and underwriting, enabling underwriters the ability to consider individual circumstances and make exceptions based on factors like a high bank account balance.

Benefits

  • Flexible Income Verification: Ideal for self-employed, freelancers, and business owners whose income may fluctuate.
  • Accessibility: Provides an avenue for homeownership for individuals who might not meet the strict income requirements of conventional loans.
  • Wider Range of Property Types: Can be used to purchase primary residences, investment properties, and second homes.
  • Faster Approval (potentially): Due to reduced documentation requirements these loans typically close faster.

Important considerations

  • Bank statement loans are considered higher risk resulting in higher interest rates and typically requiring larger down payments compared to traditional mortgages.
  • Eligibility criteria, including credit score requirements and the number of bank statements needed, can vary from program to program.
  • Underwriters will carefully scrutinize bank statements, questioning large or unusual deposits.

In essence, a bank statement loan offers a viable option for those with non-traditional income to secure a mortgage.

 

Contact Renovation Lender - Mark Vernon to assess whether a Bank Statement Loan is the right fit for your financial situation.