BANK STATEMENT
Loan Guidelines

A Bank Statement Mortgage Loan is a type of home loan designed for self-employed individuals, business owners, freelancers, or others whose income is not easily verifiable through traditional methods like W-2 forms or tax returns. Instead of requiring the usual income documentation, this loan relies on an applicant’s bank statements to assess income and determine loan eligibility. are key guidelines that typically apply to bank statement mortgage loans:

ELIGIBILITY CRITERIA
– Self-employed individuals: Most lenders require that borrowers be self-employed for at least 2 years. This includes sole proprietors, independent contractors, freelancers, and business owners.
– Business owners: For individuals who own businesses, the lender may assess both personal and business bank statements to evaluate income.
– Non-traditional income verification: Since tax returns may not fully reflect income (due to deductions or other factors), lenders rely on a steady flow of deposits into bank accounts to determine income levels.

REQUIRED BANK STATEMENTS
– Number of months: Borrowers are usually asked to provide 12 to 24 months of personal or business bank statements. Some lenders may allow for a shorter duration, but 12 months is the minimum in most cases.
– Account types: The lender will typically accept both personal and business bank statements. If business bank statements are used, lenders may analyze the expenses and cash flow of the business to ensure income is sufficient for loan approval.

INCOME CALCULATION
– Average deposits: Lenders calculate an average monthly income based on the deposits shown in the bank statements over the past 12 to 24 months. The focus is on consistent deposits that reflect revenue.
– Expense factor: For business owners, a certain percentage of deposits is deducted to account for business expenses. This percentage (usually between 50%-90%) varies based on the type of business and the lender’s guidelines. For example, a business with low overhead costs might have an expense factor of 70%, meaning 30% of deposits are counted as income.
– Personal bank statements: If only personal statements are used, lenders may not deduct as much for expenses, but they will still want to ensure that the deposits align with the nature of the borrower’s business.

CREDIT SCORE REQUIREMENTS
– Minimum credit score: Bank statement mortgage loans typically require a minimum credit score, usually between 600 and 680, depending on the lender. However, the higher the score, the better the terms offered, including interest rates and down payment options.
– Risk-based pricing: Borrowers with higher credit scores may qualify for better rates, while those with lower scores may face higher interest rates.

DOWN PAYMENT and LOAN to VALUE RATIO (LTV)
– Down payment: The down payment for a bank statement loan is typically higher than conventional mortgages. Most lenders require a down payment between 10% and 30% of the property’s value, depending on the borrower’s credit score, income, and loan amount.
– LTV ratio: The maximum loan-to-value ratio is usually 80%. This means the borrower must cover at least 20% of the home’s purchase price through a down payment.

INTEREST RATES
– Higher rates: Bank statement loans generally have higher interest rates compared to conventional loans due to the increased risk associated with non-traditional income documentation. Rates are determined by the borrower’s credit score, down payment, and overall financial health.
– Fixed vs. adjustable rates: Borrowers may have the option to choose between fixed-rate mortgages or adjustable-rate mortgages (ARMs), depending on the lender’s offerings.

DEBT to INCOME RATIO
– Flexible DTI requirements: Lenders are typically more flexible with DTI ratios for bank statement loans, allowing for higher DTI ratios (up to 50% or more). The DTI ratio is calculated based on the monthly income derived from the bank statements and any other verifiable income sources.

PROPERTY TYPES
– Eligible properties: Bank statement loans can be used to purchase various property types, including single-family homes, condos, townhouses, and in some cases, investment properties. However, lender guidelines may vary regarding investment property eligibility.
– Owner-occupied vs. non-owner-occupied: Some lenders may restrict these loans to owner-occupied properties, while others allow for second homes or investment properties.

LOAN AMOUNTS
– Higher loan limits: Bank statement loans often cater to higher-value homes, and loan amounts can be quite substantial—sometimes exceeding $3 million. Borrowers who may not qualify for conventional jumbo loans may find this loan type advantageous.
– No mortgage insurance: Unlike some traditional loans, bank statement mortgage loans typically do not require private mortgage insurance (PMI), even if the borrower puts down less than 20%.

DOCUMENTATION REQUIREMENTS
– Business license: If the borrower is a business owner, the lender may request proof of the business, such as a business license or other supporting documents.
– CPA letter: Some lenders may require a letter from a Certified Public Accountant (CPA) verifying the borrower’s self-employed status and income.
– Profit and loss statements: In some cases, a profit and loss (P&L) statement may be required to support the bank statement income.

CLOSING PROCESS
– Longer timeline: The closing process for bank statement loans may take longer than conventional loans due to the additional documentation review and income analysis. Expect a closing timeline of 30 to 45 days, depending on the lender’s underwriting process.
– Third-party verification: Lenders may use third-party services to verify the authenticity of the bank statements and cross-check them with public records or business licenses.

Bank statement mortgage loans offer a flexible alternative for self-employed borrowers and those with complex income structures. While the qualification process differs from conventional loans, the key elements are consistent deposits, a solid credit score, and a sufficient down payment. These loans are ideal for individuals who can demonstrate financial stability through bank statements but might not meet the income documentation requirements of traditional mortgage loans.