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Bank Statement Loans

Scott Bayhouse  3-MINUTE READ  June 10, 2024


What Is a Bank Statement Loan?

bank statement loan allows you to apply for a mortgage without having to prove your income via pay stubs, W-2s, or tax returns. Instead, lenders assess your earnings based on recent bank statements. This type of loan can be particularly helpful if:

  1. Inconsistent Income: If your income fluctuates or you receive irregular payments, bank statement loans accommodate these variations.

  2. Self-Employment: Self-employed borrowers often face challenges with traditional income documentation. Bank statement loans allow them to use their business and personal bank statements to demonstrate their financial stability.

  3. High Deductions: Suppose you claim significant tax deductions (e.g., business expenses) that reduce your taxable income. In that case, bank statement loans provide a more accurate picture of your actual earnings.

Benefits of Bank Statement Loans

  1. Flexibility: Unlike conventional loans, which rely on strict income verification, bank statement loans offer flexibility. They consider your overall financial health rather than just your tax returns.

  2. Higher Qualification Amounts: If your tax returns show lower income due to deductions, bank statement loans allow you to qualify for a higher loan amount based on your actual cash flow.

  3. Business Owners and Gig Workers: Entrepreneurs, freelancers, real estate agents, and gig workers can benefit from bank statement loans. These borrowers often have non-traditional income sources.

How Do Bank Statement Loans Work?

  1. Documentation: When applying for a bank statement loan, provide bank statements from both personal and business accounts. Lenders typically look back up to two years.

  2. Eligibility: While most lenders require at least two years of self-employment history, some offer options for those with less than a two-year track record.

  3. Interest Rates: Keep in mind that bank statement loans fall under the category of non-qualified mortgages (non-QM). They may have slightly higher interest rates compared to conventional loans.

  4. Working with a Mortgage Broker: Since not all lenders offer bank statement loans, consider working with a mortgage broker who can connect you with suitable options.

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