What is a bank statement loan?
With a bank statement loan — also known as a stated income loan≈you won’t need to provide your lender with some of the typical financial documents needed for a mortgage, such as W-2s and tax returns. Instead, you’ll use bank statements to prove income. This can be helpful if your income is inconsistent. your employer doesn’t issue traditional paychecks or you claim significant tax deductions. This might apply if you’re a doctor. lawyer or real estate agent, for instance.
“One example would be if your tax returns show that you made $100,000 last year when you really made $200,000 because you were able to deduct an expensive printing machine you bought,” says Brad Seibel, head of Mortgage at Sage Mortgage. “Your bank statements, rather than your tax returns, would adequately show your income.” (Editor’s note: Sage Mortgage is owned by Bankrate parent company Red Ventures.)
Bank statement loans are considered riskier, however, and many banks and mortgage. companies don’t offer them. That’s because they’re non-qualified (non-QM) mortgages, meaning they aren’t backed by Fannie Mae and Freddie Mac, so there’s less protection .for lenders and borrowers.
How do bank statement loans work?
The application process for a bank statement loan differs from that of a traditional mortgage. When you apply, you’ll provide the lender bank statements from the past year. or two years, instead of the past two months or three months, as well as information. about your business (such as profit and loss statements) and expenses. If you have personal and business accounts, you’ll need to provide statements for both.
“The type of business. the number of employees and whether the business has a physical location are some of the questions that bank statement lenders will want to know to decide the expense factor,” says Darrin Seppinni, president of HomeLife Mortgage
Although statement loans offer greater flexibility, they come with downsides. These mortgages typically carry a higher interest rate, and it’s not uncommon for them to have a prepayment penalty. (If you expect to refinance the loan in the future, this penalty could throw a wrench in those plans.)
Depending on your credit score, you might also need to make a larger down payment. Generally, you can qualify for a bank statement loan with a score as low as 620, but a 700 or higher gets you a better rate and terms. A borrower working with. HomeLife Mortgage that has a credit score of 640, for example, might need to make a 20 percent down payment, while a borrower with a 660 score could get away with putting down 15 percent.
Who are candidates for b statement mortgages?
“Good candidates for statement loans include small business owners, entrepreneurs, freelancers and gig workers,” says Seppinni.
This often includes full-time real estate investors, who qualify for. bank statement loans based on revenue from their portfolio.
You might also consider a bank statement loan if your income can’t be documented in a traditional way. For example, some employers pay workers via prepaid cards instead of direct deposits.
How to find a statement loan
If you aren’t already working with a mortgage lender who offers bank statement loans, a mortgage broker might be able to help you find one. A broker often has partnerships with several wholesale lenders, which gives them access to a variety of unique types of mortgages and deals. Brokers typically don’t charge borrowers for their services — instead, they charge the lender, who then passes the cost onto you in the form of fees or a higher rate. When comparing brokers, ensure whoever’s on your short list s licensed to work in your state and has experience with bank statement loans.