Bank statement loans are a particular kind of loan that lets you apply for a mortgage without providing the paperwork most lenders want as proof of your income. If you’re self-employed or run your own company, you may qualify for a loan using your bank statements as collateral. In addition, you may utilize them if your income is inconsistent or if you have more than one employer willing to verify your wages.
Find out how the process of getting a loan based on a bank statement works.
How Do Bank Statement Loans Work?
No W-2s, pay stubs, tax returns, or employer verification documents are required for bank statement loans. Instead, you may provide evidence of your revenue and cash flow by using your personal or company bank accounts.
You will still be required to provide your lender with additional standard documentation as part of the loan procedure. You might be required to complete more paperwork and submit more proof of income than you would for a traditional loan.
If you want to apply for a loan based on your bank statement, you may require the following:
Bank statements from the last 12 to 24 months, either for individuals or companies
Having a good credit rating
Evidence of your financial resources, for instance, an investment or a 401(k)
A letter confirming that your tax returns are filed as an independent contractor, along with proof of the expenses you spent on your company
A minimum of two years of experience working as a self-employed individual
A duplicate of your business registration license
Have enough liquid assets to meet your mortgage payment needs for a few months
Lender-specific requirements will dictate which documents you’ll need. A mortgage lender could be more lenient with credit scores than another.
If a lender rejects you, it is in your best interest to apply to other financial institutions. Perhaps there is still someone who would lend to you.
There is a little increase in the lender’s risk with these loans. Thus, a greater down payment may be required. A higher interest rate is another possible outcome.
Who Can Get a Loan Based on a Bank Statement?
If you don’t have a reliable source of income, a bank statement loan might be a good option. Additionally, they are beneficial if you cannot get an employer’s proof of income. Those who could benefit from a bank statement loan include self-employed individuals, Freelancers, Lawyers, Consultants, Doctors, Investors, and Real Estate Agents, among others.
It might be difficult to qualify for a conventional or FHA loan if your income is subject to frequent adjustments for company write-offs and deductions, as is the case for those in the aforementioned professions. It may not be an accurate depiction of your earnings.
However, your entire earnings are shown in your banking records. This may enable you to qualify for a loan that you otherwise couldn’t.
If you already have a property, bank statement loans may be used to refinance your mortgage. You may be eligible for one of these loans if you’ve stopped working full-time after purchasing your house but would still wish to refinance.
Pros of a Bank Statement Loan
Here are some benefits of a bank statement loan:
A lender usually won’t even ask to see your tax returns or transcripts.
Monthly deposits form the basis of your income statements.
Lenders may look at either a 12- or 24-month bank history.
You may provide a profit and loss statement covering the last 24 months if you own a company. A Certified Public Accountant (CPA) is a professional who compiles financial statements like a profit and loss report. However, not all company owners will need to provide such evidence.
There is a low-down payment option available with a bank statement mortgage loan.
A cash-out refinancing deal may be done for up to 85 percent of your property’s value.
A $5 million loan is possible.
To be approved for a loan based on a bank statement, your debt-to-income ratio should be no more than 55%.
You may choose between a mortgage with a fixed rate or an adjustable rate.
An interest-only mortgage may be available to you.
Cons of Bank Statement Loans
Here are some drawbacks of a bank statement loan:
A higher down payment might be required.
Interest rates might be higher.
It’s not something every lender provides.
FAQs
Which type of lender offers bank statement loans?
Financial institutions such as banks and credit unions often provide bank statement loans. However, most of them will have varying conditions and terms depending on your income and credit. You’ll need to look around or hire a broker to get a mortgage using your bank statements.
When applying for a bank statement loan, what kind of credit score do I need?
Every financial institution has certain conditions for bank statement loans, and a credit score is one of them.
To be approved for a mortgage, or any loan for that matter, having a high credit score is important. With most lenders, a credit score above 620 can get you approved for a bank statement loan.
I’m not self-employed. Can I still qualify for a bank statement loan?
Bank statement loans are also available to retirees since their income is not often reported on tax returns.
To be clear, company owners, freelancers, gig economy employees, and real estate agents aren’t the only ones who may qualify for loans for the self-employed.
How difficult is it to secure a loan based on a bank statement?
Finding a reputable lender to provide a bank statement loan might be challenging. But because these loans are based on bank statements rather than conventional means of verifying income, they provide opportunities to many applicants who otherwise wouldn’t have the chance to get a mortgage. You shouldn’t have too much trouble qualifying as long as you can provide proof of income through bank statements and have a good credit score.
Can bank statements be used for any other form of loan?
Bank statements are not required for any other loans, but they may be used to verify income when applying for certain types of mortgages.
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