Flexible Financing with Bank Statement Loans
Self-employed individuals or those with non-traditional income sources often face challenges in providing the income documentation required for traditional mortgages.
Bank statement loans or Stated Income Loans allow these individuals to access financing based on bank deposits or liquid assets rather than tax returns or pay stubs that don’t accurately reflect their true income.
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What is a bank statement Loan?
Bank Statement or Stated income mortgages, sometimes referred to as “alternative documentation loans,” have become increasingly popular among homebuyers who may have non-traditional income sources, irregular income streams, or are self-employed. The primary benefit of a stated income mortgage is the ability to use alternative forms of income verification, such as bank statements or asset-based methods, to qualify for a home loan. This flexibility can be a game-changer for individuals whose income may not fit the traditional mold, providing them with the opportunity to secure a mortgage and achieve their homeownership goals.
How does a bank statement loan work?
Instead of traditional income verification documents, applicants are required to submit a specified number of recent bank statements. While the income verification process may be less stringent, lenders typically place a greater emphasis on the borrower’s creditworthiness or credit history and overall financial stability. This means that maintaining a strong credit profile and demonstrating responsible financial behavior are crucial steps in positioning yourself for success when pursuing a stated income mortgage.
Common bank statement loan requirements
Loan approval depends on a borrower’s ability to provide the following:
- 12-24 months of bank statements
- Credit score of at least 620 (but higher will help you access better rates and terms)
- Down payment of at least 10%
- Debt-to-income (DTI) ratio established by lender
- Loan-to-value (LTV) ratio established by lender
Bank statement loan FAQs
Bank statement loans are designed to be more flexible in assessing income, making them accessible for self-employed individuals or those with non-traditional income sources.
Your lender generally will want to see 12-24 months of a borrower’s most recent bank statements to assess their income, expenses, and overall financial stability.
Yes, an asset depletion mortgage is a type of bank statement loan. Instead of using your bank statement, W2s, or pay stubs, lenders evaluate the value of the borrowers liquid assets (bank accounts, CDs, investment accounts, and retirement accounts) to assess a borrowers ability to repay the loan. These loans are particularly advantageous for retirees, self-employed individuals and those with irregular income streams.
Yes, a “no doc” mortgage, also known as a “no-income verification mortgage,” is another type of bank statement loan, where lenders assess your ability to repay the loan based on your bank statements rather than traditional income verification documents like pay stubs or tax returns. Entrepreneurs, self-employed individuals, and those with complex financial situations like the streamlined process and appreciate not having to disclose extensive personal financial details.
While the reduced documentation requirement is nice, it typically comes with potentially higher interest rates and fees, and a higher down payment requirement to offset the risk.