More Common Than You Think: Bank Statement Loans

Looking for a loan but your W2 doesn’t reflect your actual wealth?  Work for yourself or own a small business and don’t have regular pay stubs?  This is a scenario that we hear about time and time again at A Nightmare on Loan Street Blog.  These are just some of the emails I’ve received lately:

“Phil, I own my own business, maximize my legal deductions, and don’t have much to report on my W2: what options do I have for a loan?”

“Phil, I don’t qualify for a QM (qualifying mortgage), so how can I buy a house?” 

“Phil, I’m a self-employed doctor/attorney/real estate investor, and I have money, but the bank won’t approve my loan application.”  

“Phil, pizza vs. french fries, who would win?”

Let me start by saying that french fries win.  Every.Single.Time.  Now that we’ve established that, I’d like to address the other questions from people who legitimately are emailing for help with loans and mortgages.  

Bank statement loans are a non-QM option that is far from subprime.  A lot of times people see non-QM loans and think that these are only for folks with foreclosures, poor credit, or have filed for bankruptcy in the past.  While this may be true of many non-QM loans, bank statement loans are a bit different.  Think of them as the Diet Dr. Pepper of diet sodas.  Most people think of diet sodas as something that taste terrible.  Not Diet Dr. Pepper - it tastes more like regular Dr. Pepper, and thus it is different than the other diet sodas out there.  

A bank statement loan might be a good option if you’re self-employed, have seasonal or irregular income (let’s say your income is typically based on commission vs. salary), don’t pay yourself much on your W2, or earn money from real estate.  It might be hard for a bank to approve a conventional loan based on the standard documents like tax returns and pay stubs.  They aren’t going to accurately reflect your true finances.  Enter the bank statement loan.

With a bank statement loan, lenders will use other available data to see the full financial picture.  Here’s what’s typically involved:

• 12-24 months of bank statements (can be personal, business, or a mix of both)
• Credit score - the higher the number, the better)
• Debt to Income ratio - to evaluate the existing debt you have and your ability to pay it
• Loan to Value ratio - how much you’d like to borrow vs. the price of the home
• P&L for your business
• Cash reserves  - to make sure you can pay the monthly loan payment if regular income dries up

Bank statement loans usually carry a higher interest rate since these loans carry more risk for the lender.  It’s fair to expect rates to be 0.5% to 1.0% higher than a conventional loan.  

So how long does it take for a bank statement loan to get approved?  This depends on how transparent the borrower is with the lender, and how prepared they are with the documents needed (see above).  If everything is in order, this loan can close in a month.  If there’s some back and forth, expect two months or longer.  

If you’re interested in getting started with a bank statement loan, you should contact the team over at Truss Financial Group.  They take a common sense approach to lending, and they’d be happy to talk to you about a bank statement loan.  

PS. Checkout this article from our friends at Bankrate regarding housing concerns with former inmates.