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What Are Bank Statement Loans
A bank statement loan, also known as a self-employed mortgage or a non-QM (Non-Qualified Mortgage) loan, is a type of mortgage loan designed for individuals or businesses who may have non-traditional income sources or difficulty documenting their income through traditional means, such as pay stubs and tax returns. These loans are typically used by self-employed individuals, freelancers, small business owners, and others who have variable or unconventional income streams.
The key characteristic of a bank statement loan is that it relies on bank statements, typically personal or business bank statements, to verify income. Instead of providing tax returns or W-2 forms, borrowers provide their bank statements, often for the past 12 to 24 months. Lenders will review these bank statements to assess the borrower’s income and determine their ability to repay the loan.
Here are some key points about bank statement loans:
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Flexible income documentation: Bank statement loans are designed to accommodate borrowers with fluctuating income or those who have a significant portion of their income in cash. This flexibility can be helpful for self-employed individuals who may not have consistent pay stubs or tax returns.
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Higher interest rates: Bank statement loans typically come with higher interest rates compared to traditional mortgage loans. This is because they are considered riskier for lenders due to the unconventional income verification method.
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Larger down payment: Borrowers may be required to make a larger down payment compared to traditional mortgages to mitigate the lender’s risk.
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Credit score requirements: While credit score requirements can vary by lender, borrowers may need a decent credit score to qualify for a bank statement loan.
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Loan types: Bank statement loans can be used for various types of mortgages, including purchase loans, refinancing, and home equity lines of credit (HELOCs).
It’s essential to note that bank statement loans have become less common in recent years, as they were associated with the housing market crash of 2008. However, some lenders still offer these loans to qualified borrowers, and the specific terms and requirements can vary widely between lenders. If you’re considering a bank statement loan, it’s essential to shop around, compare offers, and carefully review the terms and conditions to ensure it’s the right option for your financial situation.
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Statement Loans of Bank: Requirements for Eligibility
Bank account loans are meant for people who may not qualify for ordinary loans because of their untidy incomes or the inability to produce a usual source of income like pay stubs and W-2s. These types of loans use bank statements to substantiate income.
Main Bank Statement Loan Eligibility Requirements
Self-Employment Verification:
Duration: For at least two years, borrowers must be self-employed. Lenders can request for a business permit or any other evidence that shows one is in business.
Business Type: Suitable for small businesses owners, freelancers, gig workers and independent contractors.
Bank Statements:
Personal vs. Business Accounts: To confirm earnings, lenders might need 12-24 months’ personal or business bank statements.
Consistent Deposits: Frequent deposits made into the bank account that show steady and adequate income to sustain mortgage payments.
Credit Score:
Credit Score: Usually, a credit score of 620-680 minimum though some lenders may consider lower scores with compensating factors.
Impact on Terms: The higher your credit score is, the better interest rates and loan terms you receive.
Down Payment:
Percentage: Typically, down payment should range from 10% – 20% of the home’s purchase price.
Influence of Credit and Income: Depending on borrower’s credit score and documented income level; down payment amount may vary greatly.
Debt-to-Income Ratio (DTI):
Calculation: Lenders make this calculation by taking total monthly debt payments divided by gross monthly incomes.
Acceptable Range: Most lenders prefer DTI ratio below 43%, but some will go up to 50% with strong income documentation.
Income Calculation:
Averaging Deposits: Monthly deposits from bank statements are often averaged by lenders in order to determine qualifying incomes.
Expense Deductions : When considering expense deductions (e.g., fifty percent) as it relates to business accounts, lenders therefore reduce qualifying income.
Documentation Requirements:
Bank Statements: Provide 12 to 24 months of consecutive bank statements.
Proof of Self-Employment: Business licenses, professional organization memberships or client letters can be proof.
Asset Statements: Savings, retirement accounts and other assets may need to be proven for financial stability purposes.
Property Types:
Eligible Properties: Single-family homes, condominiums, townhouses, and multi-family properties (up to four units).
Occupancy Types: Primary residences second homes and investment properties are allowed as well.
Steps to Qualify for a Bank Statement Loan
Prepare Documentation:
Gather 12-24 months of bank statements.
Collect proof of self-employment such as business license or client contracts.
Obtain asset statements for savings and retirement accounts.
Choose a Lender:
Identify lenders that offer bank statement loan programs. Specialized lenders mortgage brokers and some traditional banks may offer these loans.
Complete the Application:
Submit the loan application along with the required documentation.
Be prepared to explain any large or unusual deposits in the bank statements.
Underwriting Process:
The lender will review the bank statements and other documentation to verify income and financial stability.
An appraisal of the property will be conducted.
Loan Approval and Closing:
Review loan terms and conditions when approved.
Proceed with closing which involves signing loan documents plus payment of any required closing costs.
Bank statement loans can be a reasonable choice when one is self-employed or a small business owner that might require more standard income verification methods. These mortgage types are very flexible and easy to access especially for the borrowers who have peculiarity in their financial situations; they use bank statements as evidence of income. For more information, it’s better to speak with a bank loan officer or mortgage broker who specializes specifically in this area and has worked for several years with people that take loans based on bank statements like GCA Mortgage Group.
https://gcamortgage.com/bank-statement-mortgages-for-self-employed/
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Bank Statement Mortgages For Self-Employed Borrowers
Bank Statement Mortgages does not require income tax returns. Qualified income is by averaging 12 months of bank statement deposits