If you’re self employed, your tax returns may not show enough income for you to qualify for a mortgage. Instead, however, you may qualify for a bank statement program loan.
Most often, a borrower will qualify their income for a loan using either their tax returns or W-2s. However, not everyone can qualify for a loan using this method.
For this reason, many self-employed individuals pursue bank statement program loans. This kind of loan enables them to access funds without submitting standard approval documentation.
To learn more about bank statement programs and how they work, continue reading.
A bank statement program loan enables you to apply for a loan without submitting your tax return for approval. Typically, it will allow you to borrow up to 80% of the value of a home.
With the right reserves and credit, however, a lender may provide up to 90% of the value of the home. In some cases, the lender may not even require you to secure private mortgage insurance.
With the loan, you can purchase your first home. Alternatively, you can use the funds to buy an occupied home, a second home, or investment property.
You’ll need a letter signed by a CPA stating that you still operate your business. Now, you’re ready to start the process of receiving a custom bank statement program home loan.
You may need to show anywhere from 12 to 24 months of personal or business statements. The lender will qualify you for the loan based on the information in those documents.
You could qualify for the loan based on 100% of your personal account deposits. Alternatively, a lender may provide a loan based on 50% of your business account deposits. Either way, you’ll need to show a minimum of 12 months of statements.
Some borrowers can secure up to $3 million in funds. At most, the loan amount typically will not exceed a 90% maximum loan-to-value ratio. Still, a bank statement program loan is ideal for self-employed individuals and 1099 contractors.
If you have decent credit, you may find that the terms of a bank program loan are even better. Imagine, for example, that you have a credit score of 680 or higher. In that case, a lender may underwrite a loan with no reserves for 65% or less of the loan-to-value-ratio of the property that you want to buy.
With a bank statement program, there’s no need to apply for tax return transcripts. You also don’t have to bother with providing your company profit and loss statements.
If you operate an S corporation, for example, you also don’t have to worry about providing a Schedule K-1 report. All that you need are the bank statements requested by the lender.
There are many kinds of people who take advantage of bank statement programs. These individuals may work as:
Even some consumers may find it beneficial to apply for a bank statement program loan.
What these individuals typically have in common is that they want to do a cash-out transaction. Usually, this transaction will include an investment property and a primary residence.
Often, people who have inconsistent cash flow will apply for a bank statement program loan. Alternatively, someone who can’t acquire income documentation from their employer might apply for this financial instrument.
If you’re an entrepreneur, you may fall into this category. For example, you may not qualify for a conventional or FHA mortgage loan. Typically, this happens because of adjusted deductions and business write-offs.
When traditional lenders calculate your earnings, they exclude these items from your yearly income. However, your bank statements might tell a different story.
You may hear someone refer to a bank statement program loan as a nonqualified mortgage (Non-QM). Non-QM means that the loan doesn’t conform to traditional lending standards. As such, not every bank offers a bank statement program.
More often than not, credit unions and banks stay away from providing these kinds of loans. For this reason, you’ll have a better chance of securing a bank statement program loan through a mortgage lender. However, you’ll need to do some research to find a trustworthy lender who will give you favorable terms.
The terms of your bank statement program will vary. A mortgage lender will structure your loan based on your unique situation. Also, there are different bank statement program loans available.
Some programs will require 12 months of statements. Others will ask you to provide 24 months of documentation. However, a longer statement history might allow you to access better rates and terms.
Finally, some lenders may not accept personal statements for their bank statement program loans. In that case, you’ll need to use business statements.
Today, FHA loans are the most popular loans among homeowners. Nevertheless, a bank statement program allows self-employed individuals to qualify for a loan easily. This kind of loan makes also it easier for entrepreneurs to invest in real property.
There are a couple of things that you can do to help you qualify for a bank statement program loan. For example, you can check your credit score and make any repairs before applying. You can also consider making a larger down payment on your property.
Bank statement loan programs are ideal for a range of self-employed individuals. For instance, you may work as a seasonal worker.
Seasonal workers typically work a single season for their entire yearly income. If you do this kind of work, you’re an ideal candidate for a bank statement loan.
When applying for a traditional loan, a bank will annualize your earnings. They’ll use this estimate to assess how much money you have access to throughout the year.
However, this practice makes your gross monthly income smaller. In most instances, it makes it impossible to qualify for a standard bank loan.
Alternatively, you may work on commission. In that case, you’d also find it difficult to secure a traditional loan.
Commission pay is not like regular income. Some weeks you’ll make a great commission. Other weeks, however, your earnings may prove much lower.
Again, a lender will annualize your income to assess your ability to repay a loan. They’ll also review your income tax returns.
If you work in commission sales, you may write off many items at the end of the year. However, these write-offs will also decrease your yearly gross income.
With a bank statement loan, however, a mortgage lender will deduct fewer expenses from your income. For this reason, you’ll have a better chance of getting approved for the loan.
A bank statement loan provides several advantages. Firstly, there’s no need to bother gathering tax returns or W-2s. You also don’t need to copy your pay stubs and submit them to a lender when seeking approval for a bank statement program loan.
Also, bank statement program loans allow for a higher debt-to-income ratio. They also offer higher limits.
Finally, a bank statement program is more flexible compared to a conventional loan. As an example, you can use a bank statement program loan to purchase a primary residence, a second home, or investment property.
However, a bank statement program loan also has a couple of disadvantages. For example, with a bank statement program loan, you may pay a slightly higher interest rate compared to a traditional loan.
Again, not every financial institution offers bank statement loans. For this reason, you may have to do some work to find a lender that participates in this kind of program.
Accordingly, it’s helpful to partner with a mortgage broker to help you find a bank statement program lender. A mortgage professional has access to a variety of loan programs. They can also help you to find the perfect program to fit your needs.
A bank statement program loan is an ideal way for self employed individuals to access funds. It’s a great way to buy your first home if you’re self employed. A bank program loan is also an excellent way to invest in a second property that will boost your income.
If your credit has recently improved, there’s never been a better time for you to apply for a bank statement program loan. Your credit can have a significant impact on the terms of the loan. With a better credit history, you may qualify for a better rate through the program.
With a bank statement program loan, you can access needed funds without the documentation you’d typically need for a standard loan. For this reason, entrepreneurs and individuals without consistent income frequently use this kind of financial instrument.
For example, the gig economy is expanding. Today, tens of millions of gig workers earn their income through self-employment.
A bank statement program loan is a good way for gig workers to access a loan. It provides a more flexible way to prove income and assets.
Now you know more about bank statement programs and how they work. What you need now is an exceptional mortgage lender.
Blake Mortgage treats every client with impeccable standards of integrity, professionalism, and loyalty. We’ve helped people to access residential and commercial mortgages for nearly 20 years. During that time, we’ve worked diligently to help our clients secure needed funding.
With Blake Mortgage, you can count on a customized, comprehensive mortgage solution. We pride ourselves on delivering a detailed, personalized, and client-focused approach.
If a bank statement program loan sounds like a good fit, don’t wait! Start the application process now.