Should You Qualify for a Loan Using Personal or Business Bank Statements?
For entrepreneurs, investors, and business owners, qualifying for a loan is often a challenge. Fortunately, they can use bank statements to help with final approval. Bank statement loans are useful when you don’t have traditional documents like paystubs and typical tax returns.
If you have decided that a bank statement loan is right for you, you’ll need to decide, if you have them, whether to use personal or business bank statements. Each have their uses, and deciding on the right one could impact your mortgage.
What are Bank Statements?
A bank statements is little more than a document, sent by a bank to an account holder, that outlines the details of all transactions and activity. They usually contain account information, including account details and a list of all deposits and withdrawals.
Essentially, it shows all activity within that account. It shows the total amount of money that is resting in the account, and also shows how and when money has been added and taken out. Usually the activity is in a chronological order so account holders can easily review the activity.
Bank statements hold a few different purposes, and they can come from all varieties of bank accounts. The main purposes of a bank statement is to allow account holders to review activity. There is, however, another use for these statements: to allow mortgage lenders to review account activity.
By providing detailed financial information, these documents can be extremely useful throughout the qualification process. They give lenders valuable information, making them an important resource when they are going through your financial profile.
If you are a business owner, you may have bank statements for your business as well as your personal finances. Using one or the other could determine exactly how your approval process moves forward.
What are the Differences Between Personal and Business Bank Statements?
There are many decisions an entrepreneur must face. One of these decisions is whether or not they will use personal bank accounts or have a separate bank account that is solely dedicated to the business.
So what are the main differences? Will you have any benefits (or perks) from using one or the other? Initially, these two accounts look the same, but if you take a deeper look at personal and business bank accounts, you’ll see that there are differences, and these differences impact how they can be used on your mortgage qualification.
A business bank account is legally connected to your company, LLC, corporation, or whatever entity you use for the business. The money in that account essentially belongs to the business, which means there are legal and tax implications. These can be especially complicated if you have multiple people operating the business. For example, if you are the sole proprietor, it’s relatively easy to take out cash or use the funds as part of loan qualification. If you have multiple business owners, however, it may be more difficult, as you have to get complete approval from other owners.
Many people choose business bank accounts because they are legally separate (within reason) from your other accounts. Separating your finances, depending on the nature and structure of your business, could even be legally required. Overall, however, it helps protect your assets, keeping them separate from lawsuits. So if someone sues your company, the company’s bank account could be in jeopardy, but your personal account would be protected, at least in part.
Mortgage Qualification: What’s the Difference Between Using a Personal or Business Bank Statement?
Using Personal Bank Statements
When you use a personal bank statement for your loan qualification, you essentially bring the information to the lender, just as you would with any other document. They will then go over the financial data and make sure your finances are strong enough to support a loan.
Different lenders will look for different details in your bank statements. They will generally look to make sure the money in your account is “sourced” and “seasoned.” “Sourced” means that lenders can identify where the money came from, while “seasoned” means that the money has been in the account for some time. (They prefer that the majority of the account is not a recent large deposit.)
The lender is, for obvious reasons, interested in your bank account totals. They want to make sure you have enough in savings to cover the closing costs, agent fees, origination fees, and other expenses that come from taking out a loan.
Using Business Bank Statements
A business bank statement can be used for loan qualification in a variety of ways. The bank statements can be used for property loans for the business itself, helping the company acquire real estate that can be used to further to goals of the company. It can also be used to purchase investment properties that fit the nature of the business, or it can be used in the more typical and traditional method: to help someone purchase a primary residence.
The company bank account for a loan that will be used to enhance the company, such as the purchase of real estate. Perhaps the company is ready to expand into a different location and wants to purchase a building that will be used as a satellite office. Perhaps the company needs more space, and will sell the existing property once a new property is secured. Whatever the reason, the data in a business bank account can be applied towards the loan.
A business owner, entrepreneur, or investor can also use a business bank account to help qualify for a mortgage on an investment property. If your business is ready to expand its investment portfolio, using the company’s bank accounts could provide the avenue you need to increase profits and expand your holdings.
While a bit more complicated, bank account statements can also be used to help purchase a personal home. In general, this business bank account will act more like supportive data. Essentially, the lending professional will look over the documents to verify that the company (on which your personal income relies) is strong and secure. If the finances of the company look solid, the lending institution is more likely to approve your loan.
Helping You Achieve the Mortgage Loan You Deserve!
If you want to qualify for a mortgage loan using personal or business bank statements, contact our team today. We’ll help you understand the benefits of each option so you can make the right choice for your future!