Why Bank Statement Loans are Great for Self Employed Borrowers

Among the many perks of being your own boss, having traditional documentation of income required for loan approvals is not one of them. When you are self-employed you often have trouble documenting your income, but by looking closer at your bank statements, a lender gets a better picture of the financial situation. Bank Statement Loans help remedy this common issue by basing loan qualification on one’s bank records rather than pay stubs, tax returns, and W-2s.

Bank Statement Loans 

Bank Statement Loans can be helpful if your income is inconsistent, your employer does not issue traditional paychecks, or you claim significant tax deductions. This might apply if self-employed and fall into categories such as insurance agents, contractors, doctors, accountants, or cosmetologists, for instance. With these loans you qualify based on your bank statements, either business or personal, allowing a lender to gauge your income and earnings more accurately.

What Exactly Are These Loans?

Bank Statement Loans rely on your banking activity, including the income deposits coming into your business or personal bank accounts month after month. An important thing a lender will look for in bank statements are consistency of deposits each month, though not necessarily same amounts. This offers a more accurate reflection of your income, as well as your ability to repay your mortgage loan.

What’s Needed To Qualify?

To apply for a Bank Statement Loan, you will need to show at least one year of documented self-employment, and 12 to 24 months of bank statements, from either a personal or a business account. A signed letter from a certified public accountant (CPA) verifying your business will also be needed. 

Your lender will look at usable annual income for qualification. While this may vary, in general, that is 50% of earnings deposits. For example, as a small-business owner you can show regular bank deposits over a twelve-month period that amount to $300,000 annually. That would mean you could have $150,000 of usable annual income (or $12,500 monthly) that is used by the lender to determine the loan amount you qualify for.

Added Advantages

A bonus of Bank Statement Loans is their versatility. These loans can be used to buy a primary residence, a second home, or an investment property for amounts up to $4 million, with either fixed-rate or adjustable-rate mortgages.

Though Bank Statement Loans are considered by some to be unusual or non-traditional, they continue to rise in popularity with today’s borrower market. If you are a non-traditional earner, this mortgage product may be the right option for you. There is no need for typical income documentation to halt your homeownership dreams!

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