Bank Statement Loans 101
You’re ready to buy a home. It’s an exciting time and a huge milestone. In addition to browsing home listings, you also need to be thinking about how you will purchase your new property. When you apply for a mortgage, you typically need to provide your W-2s and tax returns. However, not everyone has these documents to provide.
Bank statement loans allow a borrower to get a mortgage without the documents that most home loans require to prove income. Bank statement loans are also referred to as “self-employed mortgages” or “alternative documentation loans.” These types of mortgages are common for people who have multiple incomes or who do not have a steady income. Learn more about how bank statement loans work and if they are the right loan option for you.
How do these loans work?
Instead of handing over your tax returns, W-2s, employer verification forms, and pay stubs to a mortgage broker, you can use your personal bank account and business bank account (if you have one) to prove your income.
In addition to your bank account details, you will likely also need to provide the following:
- Two years documentation of self-employment
- Proof of liquid assets, like a 401(k) or investments
- Your business license
- A letter from an accountant or person who does your taxes stating you file as an independent contractor
- Proof that you have enough cash or liquid funds to cover several mortgage payments
- A good credit score (the score you will need varies from lender to lender)
- 12 to 24 months of personal or business bank statements
Bank statement home loans can carry higher risk for the lender, so you may need to provide a larger down payment than you would if you were applying for a conventional mortgage loan. Your mortgage rate may also be higher. Masihi Financial is dedicated to helping secure the best rate for your bank statement loan.
When does a bank statement loan make sense?
If you don’t receive a steady cash flow, a bank statement loan might be the best way to secure funding for a home purchase. It’s also a good option for people who do not receive proof of income from their employer(s). People who might benefit from a bank statement loan could be:
- Real estate investors
- Real estate agents
- Small business owners
If you fall under one of these types of professions, you might not qualify for a normal mortgage loan or FHA loan, because the income on your tax returns is adjusted for deductions and write-offs. That makes it difficult to represent your true amount of income, which could be significantly higher. Your bank statements show the full extent of your income and can help get you approved for a better loan. You could also use a bank statement loan to refinance an existing home.
Pros and cons of bank statement loans
There are many benefits to bank statement loans. You don’t need to provide your tax returns, W-2s, or pay stubs. You can typically get away with a higher debt-to-income ratio. You can often secure higher loan limits. These types of loans can be used on second homes and investment purchases as well as your primary residence.
There are some potential downsides to bank statement loans as well. You could pay a higher interest rate than a conventional mortgage. You may need to put down a larger down payment. Also, this type of loan isn’t offered by all lenders. Masihi Financial can help with your bank statement loan. Contact us today.
Who offers bank statement loans?
Many lenders, banks, and credit unions offer bank statement loans. Each of them will offer different terms and have different requirements of their borrowers. Comparison shopping can help you save but requires significant time. Masihi Financial can help make the process quick and easy.
Contact us today to learn more about bank statement loans and how we can help you secure the funding you need for your dream home.