Guide to Choosing the Best Bank Statement Loan Lenders

What is a Bank Statement Loan?

Also known as a stated income loan, a bank statement loan relies on your income history to assess your financial health. 

You won’t need to prove the documents needed for a traditional mortgage, such as tax returns and W-2s. Instead, your bank statements will prove your income and ability to repay the loan. 

This can be helpful for those with inconsistent incomes or if your employer does not issue traditional paychecks. That includes small business owners, lawyers, doctors, real estate agents, investors, and so on.

Since these loans are riskier than traditional options, they may have higher interest rates and down payments. 

The way that bank statement loans work is pretty simple. To assess your cash flow, lenders will review your bank statements over specific periods – typically 3 to 6 months. 

Benefits of a Bank Statement Loan

Bank statement loans are the perfect opportunity for non-traditional income earners to get a chance to buy a home. That’s why they’re also known as bank statement home loans. Let’s look at a few reasons this mortgage option may be right for you.

1. No Traditional Income Verification 

If your income streams aren’t traditional, you don’t have to offer proof with the help of tax returns or W-2s. Instead, you can use your bank statements to prove to your lender that you can return the funds.

2. Accessible for Self-Employed Individuals

You don’t need a perfect credit score to qualify for a bank statement loan. Most lenders are willing to accept borrowers with a credit score as low as 620. This is great for self-employed individuals who haven’t had the chance to build credit yet.

3. Higher Loan Limits

Bank statement loans typically have higher limits than traditional options. That’s because these loans cater to those with higher earning potential, making it easier for a lender to trust them.

Types of Bank Statement Loans

Bank statement loans aren’t just limited to personal home loans – they’re also available for business and commercial borrowers. 

1. Personal Bank Statement Loans

Personal bank statement loans typically cater to self-employed borrowers. They may have trouble getting loans traditionally, so the lender reviews their bank statements to assess their income stability. 

Asset depletion loans are a type of personal bank statement loan. In this loan, the borrower’s assets are considered their source of income, which the lender uses to calculate their notional income and qualify them.

2. Business Bank Statement Loans

Bank statement business loans rely on the company’s revenue to assess their ability to repay the loan. The lender will review the company’s bank statement and other financial documents to determine their cash flow stability. 

Businesses with seasonal fluctuations in revenue can benefit from bank statement business loans. They don’t need to provide a consistent, traditional source of income. The lender will simply account for the seasonal variations when qualifying them for the loan.

3. Commercial Real Estate Bank Statement Loans

Also known as investment property loans, this type of loan caters to investors looking to refinance their properties. The lender will review the property’s income based on its rental history and cash flow reflected in its bank statements.

Bank Statement Loan Requirements

While bank statement loans are a lot more lenient than traditional mortgage options, you’ll need to meet some requirements to qualify. 

1. Minimum Credit Score

Bank statement loans don’t scrutinize your credit score as much as traditional options. Some lenders may even qualify you if you have a credit score of at least 620 or higher.

2. Stable Income

Proof of a stable income is the main requirement of a bank statement loan. In most cases, this can be reflected in your bank statements over a period of 3 to 6 months. These statements should include all the regular deposits attributed to your income.

3. Self-Employment or Business Ownership

Bank statement loans typically cater to business owners and self-employed individuals with irregular income streams. You’ll need to provide proof that you’re self-employed or own a business. That may be via tax filings, business licenses, and other such documents.

4. Down Payment

Bank statement loans typically have higher down payments than traditional mortgages. You can expect to pay a minimum of 10%, but some may even go as high as 20% of the property’s value. 

5. Cash Reserves

In some cases, the lender may require you to have some cash reserves. These additional funds ensure that you’ll be able to cover the loan repayment in case you lose your income.

6. Debt-to-Income Ratio

Bank statement loans are typically more flexible, but some lenders may still want to evaluate your debt-to-income (DTI) ratio. In such cases, they may prefer a DTI ratio of 43% or less. 

7. Proof of Assets

If your bank statements aren’t enough to prove your creditworthiness, you’ll also need to provide proof of assets like stocks or retirement accounts.

Finding the Best Bank Statement Loan Lenders

Deciding to invest in a bank statement loan is easy – finding a good lender is the tricky part. Here are some tips to make the process easier. 

1. Research Different Lenders 

You don’t want to limit your options when looking for a bank statement lender. Create a list of potential lenders and compare their offers. Here are five top lenders offering good bank statement loan rates today.

2. Compare Interest Rates and Fees

Once you have a list of potential lenders, the last thing you want to do is accept the first offer that comes your way. Instead, weigh your options. 

That means taking your time to compare their interest rates, down payment minimums, and associated fees. Interest rates can significantly impact how much you’ll pay at the end of the day, so you want to look for a lender with low rates. 

Other than that, pay extra attention to any origination fees, closing costs, or prepayment penalties.

3. Reading the Fine Print

Finally, before you commit to a lender, don’t skim over the fine print. Take your time to read and understand the loan terms and conditions.

The repayment schedule, potential penalties, loan terms, and other provisions are crucial details. If that all sounds like gibberish to you, you can hire a financial advisor to decode it for you. Regardless, make sure the terms are clear before you sign off on the loan. 

Preparing for a Bank Statement Mortgage Application

Now that you’ve found the perfect lender, what’s the next step? Preparing for a robust bank statement loan application. Here’s what you need to do.

1. Gathering Necessary Documents 

First and foremost, collect all the documents required for the loan application process. That includes:

• Bank statements from the past three to six months
• Proof of ID (passport, driver’s license, etc.)
• Proof of address (utility bills, bank statements, etc.)
• Income documentation (profit and loss statements, 1099 forms, etc.)
• Business licenses, if applicable
• Asset documentation, if applicable
• Credit report

2. Understanding Your Financial Situation

Before you take the plunge, assess your financial situation. Calculate your income and expenses, as well as any outstanding debts or financial obligations. High DTIs can lead to rejections.

3. Maintaining a Good Credit Score 

Your credit score is a major aspect of your loan approval. While the requirements aren’t as strict, it still needs to be 620 or higher. You can maintain this score by paying your bills on time and avoiding new lines of credit.

Summary

Despite the higher down payment and interest rates of bank statement loans, they’re not without benefits. This type of loan is often the sole option for non-traditional earners. 

Overall, they’re a great way to get financing if you can’t prove your income the traditional way. If you’re in such a position, contact us today and speak with one of our financial advisors to see if you qualify.