What is a Bank Statement Loan?

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A bank statement loan is a mortgage program designed for self-employed borrowers who may not show their full income on traditional tax returns. Instead of using W-2s, pay stubs, and tax returns to verify income, the lender reviews 12 or 24 months of your personal or business bank statements to determine your qualifying income.

Many self-employed individuals take advantage of tax deductions that reduce their taxable income on paper, even though their actual cash flow is much higher. Bank statement loans bridge that gap by looking at the money coming into your accounts rather than what you report to the IRS.

Who Benefits From Bank Statement Loans?

Bank statement loans are ideal for borrowers who are:

• Self-employed business owners
• Freelancers and independent contractors
• Gig economy workers (rideshare, delivery, etc.)
• 1099 contractors
• Commission-based earners
• Anyone whose tax returns do not reflect their true earning power due to business write-offs and deductions

How Bank Statement Loans Work

The lender calculates your qualifying income by reviewing the deposits in your bank statements over a 12- or 24-month period:

• Personal Bank Statements: Deposits are typically counted at 100% as qualifying income.
• Business Bank Statements: An expense factor is applied to account for business costs. Typically, 50% of deposits are counted as income, though this percentage varies by program and can sometimes be adjusted with documentation from a CPA.
• No Tax Returns Required: You do not need to provide W-2s, 1040s, or traditional income documentation.

Bank Statement Loan Guidelines

Requirements vary by program, but here are the general guidelines:

• Self-Employment: Must be self-employed for at least 2 years, typically verified by a CPA letter, business license, or other documentation.
• Credit Scores: Typically from 620 to 700+ depending on the program. Higher credit scores may qualify for better rates and higher LTVs.
• Down Payment: As low as 10% on some programs (90% LTV), though 20% down (80% LTV) is more common and offers better pricing.
• Loan Amounts: From conforming amounts up to $3-5 million on some programs.
• Property Types: Primary residences, second homes, and investment properties are eligible.
• Loan Terms: Fixed rate and adjustable rate options available, including 30-year fixed, 15-year fixed, and various ARM structures.
• Reserves: Typically required, amount varies by program and loan amount.
• Interest Rates: Generally higher than traditional conventional loans due to the alternative documentation, but competitive across bank statement programs.

Bank Statement Loan vs. Traditional Mortgage

The biggest difference is how income is verified. A traditional mortgage requires tax returns and W-2s, which can understate a self-employed borrower's true income. A bank statement loan uses actual cash flow from your bank accounts. This often results in a higher qualifying income and a larger loan amount for self-employed borrowers.

The trade-off is that bank statement loans typically carry slightly higher interest rates than traditional conventional or government loans. However, for self-employed borrowers who would otherwise not qualify, the ability to get approved and purchase a home far outweighs the rate difference.

Getting Started

If you are self-employed and have been told you don't qualify for a traditional mortgage, a bank statement loan may be the solution. Contact me to review your bank statements and determine what you can qualify for. I have access to multiple bank statement programs with varying guidelines and pricing, so I can find the right fit for your situation.

Contact For A Free Consultation