Is a bank statement loan right for you? While this article can’t provide a final answer, it can provide some context on whether or not this is the right mortgage for your purchase.
A bank statement loan can be used by many different borrowers. But they are often the best choice for self-employed business owners who have unique borrowing needs and typically do not have the traditional documents used by most borrowers.
Are these loans right for you? Here are six questions that can help you understand if a bank statement loan is the right option for your real estate purchase.
6 Questions to Ask Yourself to See if Bank Statement Loan is Right For You
Choosing the right mortgage for your needs takes a lot of thought and often requires guidance from an experienced lending professional. These questions can’t provide a final, official, and universal answer, but they can provide direction, all while helping you better understand if a bank statement loan is right for you.
Question: Have I been self-employed for at least 2 years?
One of the most important requirements for using a bank statement loan is that you have to have been self employed for at least two years. While there are exceptions (see below), most business owners need 24 months of successful, sustained work as a self-employed professional.
Why does this question matter?
Launching a business requires taking a certain amount of risk. (How much risk compared to being employed is debatable.) The longer you last as a business owner, the more likely you are to last over the long run. Two years is basically set as the benchmark where you are viewed as less of a risk to lenders.
(There are exceptions to this rule. It may be possible to qualify with just a year of self employment if you can demonstrate longterm experience in the industry. For example, if you have been a self employed electrician for one year, but have 20 years in the industry, you may be able to qualify.)
Question: Do I Own at least 50% of my business?
Business ownership is not always a straightforward, clear issue. Some people completely own their business, while others own a share of the company, perhaps 10%, 50%, or 86%. To use a bank statement loan as a self-employed professional, you’ll need to demonstrate that you own at least 50% of your business. If you own 50% or more, you should meet this requirement. If you are the only owner, you’ll coast past this requirement.
Why does this question matter?
Lenders prefer that business owners are able to control the business they own. While you could be the operating manager, president, and CEO, if you don’t own a controlling interest in the company, many issues could be out of your hands, which could, in turn, lead to financial problems. This is one of the most important questions when researching if a bank statement loan is right for you.
Question: Can you provide 12 months of personal or business bank statements?
The more information a lender can gather, as far as they are concerned, the better. In regards to your bank statements, if you can show at least 12 months of information you’ll be more likely to reach final approval.
Why does this question matter?
The deeper a lender can go when researching your income and financial situation, the more comfortable they become with the loan. 12 months of bank statements will provide a greater context for your income, payments, and expenses, as well as your total savings, which can be important during qualification.
Question: Is your income more accurately represented in your bank deposits compared to your tax returns
To qualify for a mortgage loan, you need to demonstrate your income. For most, this is done through paystubs and tax returns, but for self-employed professionals, these documents are either unavailable (paystubs) or simply do not accurately reflect your income.
Why does this question matter?
This questions matters because it gets to the heart of a bank statement loan, the main advantage of these mortgages. When business owners file their taxes, they often use write offs and other factors to reduce their tax burden. These perfectly legitimate and legal practices are used to encourage private business ownership, a financial pillar of the country. But because of the details, a business owner’s income may not be perfectly reflected in a tax return. A bank statement, therefore, can be more accurate.
Question: Do you have a minimum of 10% downpayment
To qualify for a bank statement loan, you’ll need to meet a variety of financial requirements, including downpayment requirements. While there is some flexibility, a bank statement loan generally requires at least 10% down. This can be larger than many government-backed loans, but it’s important for reducing risk.
Why does this question matter?
The larger the downpayment, the less risk there is to lenders. Some loans are, for a variety of reasons, considered a higher risk and therefore require a larger down payment. Bank statement loans can fall into the “higher risk” category, so a 10% downpayment may be required if you want to use these loans.
Question: Have I found an experienced lender who understands the program?
Who have you talked to about your mortgage needs? Have you spoken with a single lender or a variety of different professionals to see if a bank statement loan is right for you? To get the best bank statement loan for your specific needs, you need to work with a professional who understands the mortgage industry and can access this form of financing.
Why does this question matter?
This question matters because, quite frankly, not all mortgage professionals are able to provide this service. You need to find an experienced lender who can help secure a bank statement loan, but, unfortunately, this is not a service everyone provides.
Find out if a Bank Statement Loan is Right for You
Is a bank statement loan right for you? Contact our team today and let us help you apply for these helpful mortgages for business owners.
Whether you are an experienced professional with decades of experience, or your business is just starting to show a profit, we are here to meet your home mortgage needs!
