As we discussed in the previous post, bank statement mortgages are NOT considered "qualified loans" - and because of this, they can vary quite a bit from lender to lender. For business owners, this can be even more complicated, because of the differences approaches banking and record keeping. Still, there are 3 common scenarios we can cover here, even if the exact details of loan must be determined on a case by case basis. Many of the requirements will be similar, with a few important differences. Let's take a look at these three "standard" examples for business owners... 1. Single Account
For entrepreneurs who keep all of their finances in a single account, the mortgage process will take steps to "separate" business and and personal details. You will be required, of course, to provide 12 months' worth of bank statements (potentially 24), as well as a profit and loss statement (P&L) prepared by a licensed CPA or tax preparer. The lender will typically use the P&L to determine the income of the business, examining the profits reported and comparing with your bank statements to find an average income. The P&L will by the primary document, but you bank statements are still absolutely necessary, and your lender will be checking for deposits made that reflect the business profits reported. 2. Separate Accounts - Personal
In this scenario, the business owner maintains two distinctly separate accounts - one for the business, and one for personal finance - and want to use your personal account to present your income to a lender. No P&L statement is required, and even though your income is profit from your business, the averages are only determined by the deposits from your bank statements (usually 12 months' worth). You CAN include a P&L statement, and your lender may want to review 3+ months of your business account to verify that you are maintaining both accounts. In this situation, your "personal" income will qualify you for the loan, supplemented with some information about your business. 3. Separate Accounts - Business If you want to use your business account information to prove income and qualify for a bank statement mortgage, you'll provide 12 months' worth of bank statements, a P&L prepared by a licensed CPA or tax professional - just like the first scenario. Like using a single account, the P&L will be the primary document, but your personal account statements will still be required, so you can show deposits related to the profits on your P&L. This isn't much different from the approach used in scenario #1, but it's important to know that even if you have separate accounts, you can use your business information as the primary source of qualifying income. Not every lender will offer all three options, but this should give you an idea of what's possible, depending on your individual situation. Take a look at the way you have your accounts setup, how your P&L documents reflect profits and income, and get all of your documentation together before you start shopping for loans. Being prepared - and having an idea of what will work best for you - will go a long way!
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