Bank statement loan is a non-traditional income verification loan – These types of loans are often used for those that have difficulty qualifying for a traditional mortgage due to their irregular or variable income. Many times, self-employed individuals or small business owners consider a bank statement loan.
Traditional mortgages typically require applicants to provide W-2 forms or pay stubs as proof of income. However, self-employed individuals often have income that fluctuates from month to month or year to year, making it challenging to meet these conventional income verification requirements. In such cases, bank statement loans can be a viable alternative.
Here’s how bank statement loans typically work:
- Income Verification: Instead of relying on W-2s or pay stubs, bank statement loans use bank statements as a means of income verification. Lenders will review the borrower’s bank statements for a specified period, often 12 to 24 months, to determine their average monthly income.
- Documentation: Borrowers are required to provide their personal and business bank statements, which should clearly show their income deposits. Lenders may also request other financial documents, such as tax returns or profit and loss statements, to further assess the borrower’s financial stability.
- Credit Score: While credit score requirements may vary among lenders, borrowers typically need a reasonably good credit score to qualify for a bank statement loan.
- Down Payment: The down payment required for a bank statement loan may be higher than that for a traditional mortgage, often ranging from 10% to 20% of the property’s purchase price. The exact amount can vary based on the lender and the borrower’s financial profile.
- Interest Rates: Interest rates for bank statement loans may be slightly higher than those for traditional mortgages, as they are considered riskier for lenders due to the non-traditional income verification method.
Working with a mortgage broker is extremely helpful for individuals wanting a bank statement loan. Our loan officers are able to shop around and compare offers from different lenders, as eligibility requirements, interest rates, and terms. Additionally, borrowers should be prepared to provide thorough documentation of their income and financial history to increase their chances of approval.
Think that a bank statement loan might be a good option for you? Connect with us today so that we can review your scenario and discuss your purchasing options!