BANK STATEMENT
Cash-out Refinance

A Bank Statement Cash-Out Refinance is a type of home loan designed for borrowers who may not have traditional income documentation, such as W-2s or tax returns, but can demonstrate their income and financial stability through bank statements. This refinancing option allows homeowners to tap into the equity of their property by replacing their existing mortgage with a new one that has a higher loan amount. The difference between the two loans, after paying off the original mortgage and closing costs, is provided to the borrower as cash.

Income Verification through Bank Statements
Unlike conventional loans, which require W-2s, pay stubs, or tax returns, this loan program uses personal or business bank statements to assess income. Lenders typically review 12 to 24 months of bank statements to calculate average monthly deposits and determine the borrower’s ability to repay the loan. This makes it an attractive option for self-employed individuals, independent contractors, freelancers, or small business owners with non-traditional income streams.

Access to Home Equity
Homeowners can use the cash-out portion of the loan for various purposes, such as debt consolidation, home improvements, education expenses, or investing in a new business. This flexibility makes it an appealing choice for borrowers who need liquidity but do not want to sell their home.

Loan-to-Value (LTV) Limits
The maximum LTV ratio for a bank statement cash-out refinance varies by lender and program but is typically lower than that of a traditional cash-out refinance. Many programs allow an LTV of up to 75%-85%, meaning homeowners must retain at least 15%-25% equity in their home after the refinance.

Interest Rates
Since bank statement loans cater to borrowers with unconventional income verification, they are considered higher-risk loans. As a result, they often come with slightly higher interest rates compared to traditional refinance loans. However, for borrowers who struggle to qualify under standard guidelines, the flexibility of these loans can outweigh the additional cost.

Closing Costs and Fees
Like any refinance, this type of loan involves closing costs, including lender fees, appraisal fees, and title insurance. Borrowers should carefully review these costs when deciding if a bank statement cash-out refinance is financially beneficial.

Is a Bank Statement Cash-out Refinance right for you? 
A bank statement cash-out refinance can be an excellent choice for self-employed individuals or those with variable income who have built up significant equity in their home. It allows them to leverage their home’s value for immediate financial needs while bypassing the rigid income verification requirements of conventional loans. However, borrowers should weigh the higher interest rates and closing costs against their financial goals to determine if this option is the most cost-effective solution.