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Bank Statement Home Loans

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Bank Statement Loans

Bank statement home loans are only for self employed borrowers. They are ideal because while most self employed borrowers earn a solid income, they show a smaller net income on their tax returns. Our team is well-versed in these loans and placing the borrowers where they can get the optimal loan to fit their needs. For investment properties, please review our Investment Program.

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Are you self-employed or have income that is not easily documented? If your income comes from sources other than traditional employment you could find it difficult qualifying for a mortgage loan. Bank statement loans for self employed borrowers have returned following the housing crisis and could be the answer you need for mortgage approval. Here are several tips to help simply the process of getting your bank statement mortgage approved.

Bank Statement Home Loans for Self Employed Borrowers

Homebuyers with less documentable income sources like self-employment often have a more difficult time qualifying for a mortgage. If you been trying to buy a home for your primary residence, a second home or even an investment property, you could benefit from a bank statement loan. 

What Is a Bank Statement Mortgage?

Instead of providing tax returns, pay stubs and a W-2 to document your income you will be asked for 12 to 24 months’ worth of bank statements.   You’ll often see these programs referred to as low doc credit, ez doc, subprime or even an alternative income doc mortgage. 

If you’re self-employed there are lenders that will use deposit in your business or even personal bank statements to qualify. Your bank statements need to demonstrate that the income you receive is consistent, will continue and that you have enough to repay the mortgage. Your lender may require additional documentation in the form of P&L or letter from you accountant.

How to Qualify for a Bank Statement Program

These programs are typically for the self-employed or those who earn more than 25% of their income from things like rental property income, tips, sales commissions, or self-employment work. You are considered self-employed if at least 25 percent of your income is earned from your business. Down payment may vary from 10% to 20%, depending on the type of property.

You also qualify under self-employment if your funds are from capital gains, interest, dividends from securities, real estate rental payment or sale income.

If you are applying with your spouse and they do not meet the 25% income requirement they will have to fully document income to qualify. Many lenders will require that as a self-employed bororwer you stay in your current business or line of work for at least 24 months. You may be required to document that your business has been operating successfully during this period. This could be proven with your business license or a letter from your CPA. 

Remember that your bank statements must support the income you list on your application for the mortgage. All self-employment income will be verified by the lender through your bank deposit and not your tax returns.  If your personal and business income are commingled across several accounts the lender will need more explanation as to the nature of your business. Income sources must be documented as separate and distinct on your statements.

Your goal in documenting income from personal or business bank statements is to demonstrate that you have sufficient income to pay all your monthly obligations. If you have NSF transactions, overdraft protection, or negative balances on your bank statements the lender could demand an explanation and documentation. If your statements demonstrate that you have cash flow problems your application could be denied by the lender. 

What Bank Statements Are Acceptable?

When applying for this type of mortgage you can provide statements from your personal or business accounts. Lenders do not allow commingling of personal and business accounts. Providing statements from multiple business accounts to meet income qualifications is generally not allowed.  If you have more than one business you may be required to qualify with your personal bank statements alone. Speak to one of our mortgage specialists for more details.

The bank statements you provide must only be in the names of the individuals applying for the loan. Accounts associated with other individuals not applying for your mortgage are not allowed. If your business statements are too complicated to the lender to extract your income you may be required to qualify using your personal statements.

If your bank statements have NSF fees, overdraft transfers, or negative balances they may be disqualified by the lender for demonstrating a cash flow problem which is an added risk to the lender. When providing statements keep in mind that the lender will require 12-24 months of bank statements from the same account. If you changed banks during the last 24 months you will have to document the change and provide statements from both bank with no gaps.

Additional Business Account Requirements

If you are submitting business bank statements the lender will prorate your income based on your ownership percentage of the business. If your business has too much overhead or low beginning or ending balances the lender will ask for letter of explanation to understand your business.

Once you’ve provided the appropriate bank statements the lender will use 100% of the deposits on your personal accounts and 50% of the deposits on your business accounts to determine your income. Business income is only counted if business expenses documented on the statements are less than 30% of the total income. 

These requirements might seem burdensome for the average homeowner; however, a bank statement loan provides you an avenue to housing ownership that wasn’t available before. If you’re in the process of applying for a mortgage keeping your financial house to avoid NSF fees and negative balances will help you avoid pitfalls that could get your application denied. We recommend that you speak to one of our Mortgage Specialist to get more information on current market rates and program details.

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