By using a different form of information to verify a borrower’s income, bank-statement loans make mortgages available to many people who might otherwise struggle with financing.
If you have a unique career, or simply want to improve the terms of your mortgage, a bank-statement loan might be the perfect option for you!
What is a Bank-Statement Loan?
This is a loan option that is designed for self-employed borrowers, commission-based professionals, and many other people who don’t earn a typical bi-weekly paycheck from a 9-5 career.
Most loan products, such as conventional loans or FHA loans, will use a wide variety of documents to verify a borrower’s income. They might use tax returns or W2 information, as well as pay stubs from work. With a bank-statement loan, however, you simply use bank statements on checking and savings accounts to prove your income. You’ll still need to document credit, debt-to-income ratio, and other factors, but to verify the income, you’ll use bank statements.
So why does this matter? Why are loans based on bank statements such a big deal? Because some people don’t have the traditional income-verifying documents, and some people can prove a larger income by using bank statements, making larger loans available.
Should you consider a bank-statement loan? Let’s look at seven of the top reasons that you might use this option…
Top 7 Reasons to Get a Bank Statement Loan
1. You’re Self Employed
Self-employed borrowers are typically the people that benefit the most from bank-statement loans. Without paystubs or typical income forms, it can be hard for a self-employed individual to prove their income. Even using tax returns has its own set of issues, and many borrowers will benefit from using bank-statements, even if they have tax returns to verify their income.
Bank-statement loans allow self-employed borrowers to provide months of financial data, demonstrating their ability to repay loans and giving the lender a clear picture for how much a borrower can afford. The lender will still need to see specific expenses related to the business, but they won’t penalize you for things you write off on your taxes. In other words, using bank statements allows you to fully utilize your income for the loan you need.
2. You Have a Seasonal Jobs
Seasonal workers have similar problems as the self-employed. If you earn a fantastic income throughout the year, but don’t work during the winter, you might have a hard time getting approved for a loan during the off season.
Bank-statement loans allow you to clearly document your income, but (in most cases) you will need to have been on a seasonal job for the past two years. The lender will “annualize” your income, meaning they will calculate a full year’s salary, and will use this number for loan qualification. Bank statement loans also allow you to use other incomes, such as temporary side work, to help you get approved for a mortgage loan.
3. You Earn a Commission-Based Salary
Commission-based employees, including sales associates and people whose jobs are based on specific performances, do not have the regular income that typical salaried and wage-earners have. One month a sale associate might earn $10,000, and in the next they might earn $2,000. This irregularity in their income can make loan approval difficult, but by using bank statements to verify income, these professionals can get affordable loans.
Once again, the lender will annualize the income, although some lenders may request your tax returns in addition to your bank statements, as write-offs can impact your overall salary. Using bank statements, however, allows the lender to deduct fewer expenses from your income, which could help you secure a larger loan.
4. You are Retired
Retirement assets can be difficult to use for mortgage qualification. In most mortgage applications, a borrower’s working income is used for loan approval, but you no longer have a paycheck. You can use retirement funds, but there is a specific and limited process for using retirement accounts like IRAs or pensions.
Bank-statement loans may make loan qualification simpler, as long as you can use them to prove you have a regular income from various retirement accounts. In most cases, you’ll have to prove that you have at least three years of income from a retirement account.
5. You Want to Reduce Interest Rates
Depending on the loan, you may be able to reduce your interest rate by bringing bank statements to the lender’s office. Lenders generally like to see as much information as possible, and while there’s certainly no guarantee that bank statements will reduce your interest rate, they might help. As you probably know, the reduction of a single interest-rate point can mean significant savings over the life of a loan, allowing you to enjoy a more affordable payment on a fantastic home.
6. You Don’t Have a Large Down Payment
If you can’t save for a large down payment, the lender is going to be extremely meticulous on qualification. They may request more documentation, including verification of income and assets. By having your bank statements ready, you may be able to get loan approval despite the fact that you simply don’t have a down payment, or at least not a big one.
7. You Need to Borrow a Large Amount
High-balance loans mean high risks to lenders. Not only are the stakes higher, but high-balance loans, often referred to as “jumbo loans,” are not insured or supported by any government institution. The lender takes all the risk, so they may request more information. Using a bank-statement loan, you can actually get financing as high as $3 million, allowing you to purchase an excellent house. When you need a larger loan, you may find that bank-statement loans are the best (if not the only) option.
Get Expert Assistance for Your Next Loan
If you are looking for a bank statement loan, contact the team at San Diego Purchase Loans. We’ll help you find the right options for your specific situation, allowing you to get an affordable loan on a house that you will love for years!
I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.
A very responsible and experienced professional with his highly effective team
I really enjoyed working with Chad Baker and the rest of the team. This was our first time buying a home in California and we started with unnecessary assumptions based on our previous experience as home-owners in a different state. Chad and his team were available throughout the whole process, explaining the state differences, answering all our phone calls and emails quickly and directly, and providing detailed weekly status reports so that all parties including agents knew exactly where we were in the process. Chad was very experienced and provided customized loan products for us to consider, which definitely facilitated our transaction. I recommend the Chad Baker team! ”
An ‘A’ Team!
We just closed on our second transaction with the Chad Baker team. They are very well organized and I can attest that they are looking out for their clients’ best needs. A special shout-out for Juliann B. who was our guide through the painful loan process. We found Juliann to be very responsive, kind, patient, and diligent in getting both our refis closed well.”