Bank Statement Loans: 21 Frequently Asked Questions
What type of employment is eligible for a bank statement loan?
ONLY self employed borrowers are eligible such as:
Gig economy workers
Owners of a corporation or LLC
Real estate agents
Notes: (1) A second borrower who is a salaried employee is acceptable to help qualify.
(2) only a borrowers part-time self-employment income can be used not their W2 income
Can I still qualify with another person's name on the bank statement?
Yes but only with certain lenders and you must prove all deposits are yours and not the joint account holder.
Do I need to be 100% owner of the business?
No. Some lenders will allow a minimum of 50% or 25% ownership. For the best rates it's best to be 100% owner of the business.If you own 50% ofthe business, then only 50% of the income can be claimed, not 100 percent.
How long does it take to qualify and close on a bank statement only loan?
The bank statement loan pre-qualification process from a loan originator usually takes between a few hours up to 48 hours depending on the complexity of the statements and busy periods. It's recommended to send in your bank statements and self-employment documents early so once you find a home you'd like to buy and your offer is accepted you can move quickly to closing. The entire process can take 25-35 days to complete.
Do I need rental history to qualify for a bank statement only mortgage loan?
No. Although, without a recent 12 month housing payment history the required minimum down payment for a bank statement loan is 25%.
Additional requirements are a 680 or higher middle credit score without any major derogatory credit in the last 4 years and 3-6 months of reserves. We have lenders that require rental history and others that do not with enough compensating factors.
What's the minimum credit score needed for a bank statement loan?
We have lenders that will go all the way down to a 580 credit score with a 30-35% down payment. Keep in mind most self-employed mortgage lenders are most concerned with the applicants’ ability to repay the debt. With the lower credit score bank statement loans, mortgage lenders want to see at least 12 months of rental history paid on time and at least 3-6 months of reserves. Reserves are defined as a month of mortgage payments held in the borrower’s bank account at closing of the purchase or refinance. If the mortgage payments were $2,000 per month the lender would like to see at least $6,000 in your bank account as emergency funds (3 months reserves) after the home purchase.
How is income calculated for your bank statement only mortgage loan program?
Mortgage lenders will allow you to use Personal or Business Bank Statements.
However, your qualifying income will be calculated differently.
Personal Bank Statements 100% of deposits if you can prove the money came directly from your business or a business account that received "new job-related money" and was transferred to the personal account within 1-2 days. Add up all bank statement deposits on 12 or 24 months of statements. Exclude any refunds or non work-related deposits. This number is then divided by 12 or 24 to calculate the monthly income amount. You should receive 100% of that income if you have no employees. For example, let's say your total deposits over 24 months is $220,000. Divide $220,000 by 24 and you get $9,166 per month as income. This income figure is what will be used on your mortgage application whether you are buying or refinancing a home.
Business Bank Statements: The amount derived from deposits on your business bank statements varies from one lender to the next. We have programs for borrowers who can prove very little business expenses to use up to 90% of your business bank statement deposits to qualify for this self-employed loan program. To qualify, add up all your deposits on your bank statement deposits for 12 or 24 months (depending on if you're using the 12 or 24 month program), and then divide accordingly to receive the gross monthly income we use for the borrower. For example, 24-months deposit total = $360,000 / 24 = $15,000 a month income.
Expense Ratio for Business Accounts: Mortgage underwriters understand all businesses have expenses so they want that to be proven with a profit &loss statement (by the borrower or tax preparer) or an expense ratio letter on your tax preparer's letterhead. Different bank statement lenders use different ways to calculate a businesses' expense ratio based on the type of business. Some will simply deduct 50% of your business deposits unless you can provide a P&L or CPA expense letter that claims it is 15, 20, 25 etc. If your business qualifies with the 50% default reduction in income, it could save you time versus having to provide a letter.
How do I prove I have been self employed to qualify?
Self employed borrowers must prove they have been in the same self-employment for the last 2 years (24 months). Borrowers can prove this two-year history requirement with any of the following: CPA /tax preparer letter, business or professional license from past 2 years, articles of incorporation, or LLC member agreement.
Which deposits are NOT allowed to qualify as income using bank statements?
Deposits that are undocumented, transfers from other accounts, may not be allowed unless you can provide documentation they are from a bona fide job source. Cash deposits are not allowed for income unless it is normal for your type of business. An exmple would be a retail consumer business such as a salon, auto service, restaurant, bakery, and small retail merchandise tend to have more cash paying customers. So the deposits reflect that and underwriters understand this.
Can I deposit business income into more than one bank account and use the second or third account to qualify?
Some lenders require all the money deposited into only one bank account. We have loan options for borrowers who deposit their income into more than one bank account.
Will the lender get my tax transcripts?
No. This loan does not require tax transcripts. If they are provided the loan application will not be approved for a bank statement loan.
Is the bank statement loan the only self employed mortgage without tax return option?
Not really. There are a few more options for self-employed borrowers to consider.
How much of a down payment do you need for a bank statement mortgage program?
The down payment requirement depends largely on your middle FICO credit score and housing payment history. The lowest is a 10 percent down payment. TIP: Interest rates are better with a higher down payment of 20-30 percent. We have some bank statement lenders that will allow just 15 percebt down with a 660 middle credit score
Can I get a gift for the down payment?
Yes. Some programs allows a gift but the borrower must bring in 5% of the down payment from their own funds.
What if I have more than 5 non-sufficient funds (NSF's) in the last year?
Some lenders will not approve your loan while other bank statement lender will allow NSF's.
Can I get a bank statement loan on a rental property?
Yes. A bank statement mortgage for a duplex, triplex, or fourplex property, home, condo, or townhouse used as a primary residence, second home or investment property is allowed.
My business started 18 months ago (less than 2 years), can I still qualify?
Some lenders will allow exceptions when presented the right way by an experienced loan originator.
My business has a loss, can I still qualify?
Yes. You may still qualify because we use deposits, not withdrawals, and may use an expense factor (which doesn't include deductions or carryover losses).
Can I still qualify if I was late on my rent or mortgage payment in the last 12 months?
Yes. Lenders will allow “1” 30-day late in the last 12 months. Some will allow (2) 30-day lates but not consecutive months and the rate will be increased accordingly.
Can I still qualify if I have an unpaid collection or tax lien?
The lender will require collections dated within the last two year to be paid off or removed. Tax liens with an IRS payment agreement will also need to be paid in full due to lenders regarding this as a cloud on title.
What if my business didn't earn much income in the first six months two years ago?
This is not a problem. We have strucutured loan requests like this sucessfully using this loan program.