Bank statement loans have replaced the stated income programs that were so popular last decade. Banks and lenders have gained wisdom in recent years and rolled out bank statement mortgage loans that are less risky because they enable a borrower to prove that they can afford to make their monthly mortgage payment. The most popular loan in 2024 for small business owners and independent contractors is the bank statement loan because they give the lender peace of mind and they offer self employed borrowers competitive mortgage rates.
Learn More About Bank Statement Loans and Limited Income Doc Mortgages
Are you self-employed and want to buy a home? Then you may wonder about how to get a mortgage. While some self-employed borrowers can get a regular mortgage that is based on wages, others may not qualify. If that describes you, then you might want to learn about bank statement mortgage in 2024.
Now that bank statement loan lenders are advertising again, it’s simpler for self-employed mortgages to be approved for an alternative, limited documentation loan. Below, we will walk you through the bank statement mortgage process so you can get into the home of your dreams this year.
What Is a Bank Statement Loan?
A bank statement loan is an alternative program that allows you to prove your income by your bank statements and not pay stubs or other proof of income.
Rather than provide those conventional wage documents and tax returns, you can provide about 12 monthly bank statements to prove your income.
This is not a no doc loan, but it is a limited documentation mortgage that enables many self-employed borrowers to get a low interest home loan.
Most bank statement loan lenders will use a certain percentage of the average deposits per month to serve as your monthly income for loan purposes.
Bank statement loans are the most popular loan program for small business owners in the US.
Bank statement mortgages provide self-employed borrowers with an alternative method to qualify for a home loan. Instead of using standard income documentation (ie. pay-stubs, W2’s etc.) With these bank statement loan programs, the eligibility is determined based on the income deposits shown in your personal or business bank statements.
These bank statement loans are specifically designed for self-employed professionals, entrepreneurs, freelancers, and independent contractors. They offer a convenient, hassle-free way to purchase a home, especially for those without a traditional income stream.
Years ago, self-employed people could get no doc loans and stated income loans. But after the last mortgage crash, these programs disappeared because they were largely blamed for the crisis. However, these borrowers then needed to prove their income with their net income on the last two tax returns. With so much in tax deductions, it was difficult for the self-employed person to qualify for a home loan.
The bank statement loan programs in 2024 made it easier for borrowers that do not want to provide their tax returns to get a home loan.
Popular Bank Statement Mortgage Loan Programs
3-Month Bank Statement Loans:
Eligibility is based on the most recent three months of bank statements. The account should display a positive balance, and verification by a Certified Public Accountant (CPA) is required.
Personal Bank Statement Loans:
Qualification relies on either 1 to 2 years of personal bank statements. The underwriter considers 100% of deposits as income.
Business Bank Statement Loans:
Eligibility is determined using 1 to 2 years of business bank statements. The underwriter calculate income based on 50% of deposits, or a higher percentage with a CPA expense ratio letter.
The Best Bank Statement Loans For 2024
With one of these alternative loans, you can qualify for your loan with at least 12 months of business bank statements. Some lenders may want to see 24 months of bank statements. The bank statement loan lender needs to see enough cash flow going into the account to pay for your mortgage and other living expenses.
The bank statement mortgage program is a non-QM loan product that uses bank statements to calculate a borrower’s income. Unlike traditional mortgages that depend on tax returns and W-2 forms, bank statement loans offer alternative documentation options. These unique private mortgage loans are primarily designed for self-employed individuals who often struggle to prove their ability to repay due to significant tax write-offs. Instead, bank statement loan programs evaluate applicants based on their personal or business bank statements.
These bank statement mortgages have become the most popular stated income loans in the industry this year.
Some of the advantages of bank statement loans in 2024 are:
- They can be used for most self-employed and 1099 workers to get a home loan
- Bank statements usually take the place of tax returns and pay stubs to qualify your income
- Mortgage rates are only a bit higher than regular loans
- Some loans are available with only 10% down
- Low credit scores are often allowed
- You can have a recent bankruptcy or foreclosure
- You don’t need to pay for mortgage insurance
- You may be able to apply with as high as a 50% debt to income ratio
Also, most of these bank statement loans are available in every state.
However, note the following disadvantages:
- You must be successfully self-employed for two years
- If you have a very low credit score, you may need to put more down
- Rates are higher than regular loans
- Only some lenders offer these loans
- They are not available for FHA or VA loans
What Are the Requirements for Bank Statement Loan Programs in 2024?
Bank statement loans offer greater flexibility than conventional loans in terms of income verification, term length, loan amount, and minimum debt-to-income (DTI) ratio.
However, they may come with slightly higher interest rates and down payment requirements.
Every lender will have different bank statement loan requirements in 2024, but you can generally count on these guidelines:
Must Be Self-Employed
You need to prove with a letter from an accountant that you have been self-employed for at least the last two years. It also may be necessary to provide a business license.
You can add a full-time employed borrower on the loan. But at least one of the borrowers needs to have self-employment income.
Down Payment
A few lenders may allow a 5% or 10% down payment, but some may want up to 25% down. It can be decided by how high your credit score is.
It’s important to communicate with your lender early on so you know how much down payment you need. They will check your credit score and tell you what you need.
Credit Scores
Some bank statement loan companies offer programs for those with credit around 580. But you will probably need more money down and pay a higher rate. It’s best to find out what credit score you will need as early in the process as possible.
Bank Statement Loan Requirements
Most lenders in 2024 will want to see at least 12 to 24 months of bank statements to prove your income. If you have a personal bank account, they will use 100% of the account average. For business accounts, they may only use 50%. But they will often combine both so you can more easily qualify.
Let’s say you have 24 months of deposits that show $150,000 deposited. This means you have an average monthly income of $6250. But if that is in a business bank account, it’s only $3,125 for monthly income.
Assets
The lender must fully verify all assets. This includes all bank statements and other assets that you would use to qualify for a regular home loan. The more assets you can show during this process, the better off you are. Additional assets such as other property or retirement accounts can help you qualify more easily if you have a low credit score.
Bank Statement Loan Rates
Mortgage rates for bank statement loans are similar and competitive, especially when you consider you don’t need to provide as much documentation to the lender. Of course, the rates depend on your credit score and what your average monthly income is. Keep in mind that a bank statement loan will have a rate at least 1% higher than a regular loan. Why?
The issue is the lender is taking on more risk if you can’t prove your income with tax returns. You may have a lot of income on your tax returns but most of it is cancelled out with deductions. A few lenders may offer a loan program that only requires one monthly bank statement, but these are harder to find in 2024.
How Does the Bank Statement Loan Program Compare to Traditional Home Loans?
Bank statement loans differ from traditional mortgage products in their requirements for documentation, credit score, and debt-to-income ratio. Traditional mortgages typically demand extensive documentation and a high credit score, whereas bank statement loans offer more flexibility in these areas. However, they may come with slightly higher mortgage interest rates and fees and might require a larger down payment. If you have high credit scores, there should be much of a difference in rate between bank statement loans and conventional mortgages.
What Will the Down Payment Requirements on a No Income Mortgage or Bank Statement Loan in 2024?
If you are self-employed and don’t have steady income, you may wonder if you can be approved for a mortgage.
The short answer is yes, there are no income mortgages and bank statement mortgages available for people who have irregular income and no pay stubs from a traditional employer.
A no income verification loan is typically only available for investment properties where you qualify for the mortgage by stating the rental income potential for the home. If the rent at least covers the mortgage, you can possibly get a mortgage for the property.
A bank statement mortgage may be a fit for the self-employed without traditional income. The mortgage lender will check the average deposits made in your business or personal account over 12 to 24 months.
If you have enough income flowing into your accounts during that period to cover your mortgage and other expenses, you may qualify for the loan.
How to Get No Income or Bank Statement Mortgage
Times have changed from 10 and 15 years ago when it was possible for the self-employed to get mortgages without any documents or proof of income. These days, you will need to show with bank statements and other documents that you have the income and assets to pay the loan.
Also, you will probably need to make at least a 20% down payment for a no income verification mortgage or bank statement loan. These loans are a higher risk for the bank, so they are more likely to want you to have more skin in the game.
The lender also will want to see proof of assets or income to cover the mortgage and other expenses.
Also, you will need to have good credit of 700 or higher to get a bank statement or no income loan. These are higher risk loans so it will help your cause if you have good credit. The interest rate will probably be higher for these loans as well, reflecting the additional lender risk.
Alternatively, if the co-borrower is a W2 employee, a combination of W2 and tax return income from the co-borrower, along with bank statement income from the borrower, or assets from the co-borrower and bank statements from the borrower can be utilized. Non-QM loans allow for the use of multiple sources of blended incomes to qualify.
How to Find a Lender Offering No Income Loans and Bank Statement Mortgage Programs
These are non-qualified mortgages, which means they do not follow the requirements of Fannie Mae and Freddie Mac. What does that mean for you? You will need to do more research to find lenders who offer these bank statement mortgages to the self-employed and other non-standard borrowers with irregular income.
These are typically ‘portfolio loans’ that lenders maintain on their books that are not sold to other lenders because they don’t meet Fannie and Freddie guidelines. It’s possible to find a portfolio lender offering no income and bank statement home loans. You will just need to look around more.
Remember, even if you don’t have regular income, you will still have to prove to the lender that you can repay the loan. They may want to see tax returns and bank statements that show you can pay the loan every month.
Talk to a portfolio lender soon to see if you can qualify for a no income or bank statement loan.
Key Points to Remember on Bank Statement Loans
Bank statement loans enable you to buy or refinance a home without relying on traditional income documentation. Instead, you can qualify based on your personal or business bank statements.
Bank statement loan programs will continue to emerge as a substitute for traditional stated-income loans, providing an alternative for borrowers facing challenges in verifying their income through the conventional means of furnishing the past two years’ tax returns, W2s, and pay stubs. Now you know everything you need to know about bank statement loans in 2024.
Hopefully you can shop lenders soon and find out if this bank statement loan program will work for you.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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