If you are self employed, or if you work on a commission-based salary, you must understand the benefits of bank statement loans. Traditional loans require paystubs and tax returns to verify income, but many professionals work in careers that make using these documents difficult: tax returns can be unreliable as a statement of income, and paystubs do not accurately reflect earnings.
With a bank statement mortgage, however, you can get approved by simply using information from your bank account. Qualifying is easier than you might think, but you need to remember these simple tips to help you get approved…
How to Get a Bank Statement Mortgage: Simple, Easy Tips!
Review Your Credit and Make Changes
One of the most important aspects for loans is the credit score; this goes for bank statement mortgages just as much as conventional loans. It takes time to improve a credit score, so this is something you will want to complete well in advance of the application.
First, check your credit profile with the major bureaus. If there is inaccurate or outdated negative information, you can have the items removed to give your score a quick boost.
Then focus on maintaining financial responsibility, including paying your bills on time and avoiding too much debt. If you can eliminate a sizable portion of your debt, you may improve your credit score while reducing your debt-to-income ratio, which makes you a more attractive borrower in the eyes of lenders.
Bring a Decent Downpayment
Many people want to focus on paying off debt before a home purchase, and this is without a doubt a worthwhile effort, but if you can save money for a downpayment you may increase your chances of securing a bank statement mortgage. Do what you can to save a large amount of money, and keep this money in an easily-accessible bank account so it can be used right away.
Depending on the bank statement mortgage, you may need as high as 20% down. Even 5% represents a large amount of cash ($20,000 on a $400,000 home, for example), so remember to save plenty of cash to use for your purchase. (You will likely need to start this step well in advance.)
Save for Cash Reserves in Addition to the Downpayment
While most loans will require at least some money down on the purchase, bank statement mortgages often have another requirement: cash reserves. Cash reserves are simply funds that are held in case of a financial emergency, reducing the chance of default on the loan. Basically, the bank likes to see that if you were to lose your income, you can still pay the mortgage for at least a certain time.
Cash reserves are usually calculated by a monthly equivalent of the mortgage payment. For example, if you have a $1,000 mortgage payment and the loan requires 12 months of reserves, you would need $12,000. In some cases, you could need cash reserves representing 24 months worth of reserves, so once again you may need time to meet this requirement.
Avoid Negative Information on Your Bank Statements
Because the bank statement is the main source of information for loan approval, it needs to be nearly flawless. While everyone has a few bad marks on their account, you should avoid negative information as much as possible.
If you have numerous bounced checks, this can significantly reduce your chances of approval, so make sure there is always enough money to cover every check you write.
Undocumented deposits are also an issue. If you have large, undocumented deposits, the lender will likely need to know where this money came from. This is especially important if the account is being used for cash reserves or the downpayment, as lenders want to know the source of the funds and want to ensure that the money is not a private loan from a friend or family member.
Bring 12 to 24 Months Worth of Bank Statements
Of course, you can’t get a bank statement loan without the actual bank statements. Depending on the program and the lender, you may need to bring as much as 24 months worth of account information. In most cases, however, you should be able to qualify using only 12 months of bank statements.
Know Your “Gross Income” Before Visiting the Lender
Your lender or lending agent will use numerous factors to qualify the loan, and one of the most important is the “gross income.” Typically, this number is calculated over the time period that is used for mortgage approval; if you are depositing $14,000 into your bank account every other month, for example, your gross income would be $7,000. (This is a simplified example.)
The same goes if you are receiving large payments on a long-term contract that is only paid once or twice a year. Say you get $60,000 every six months; in this case your monthly gross income would be $10,000.
While the lender will be able to calculate this number, if possible you should already have an understanding of your gross income, as you don’t want to be surprised to learn that your estimate is wrong. Take the time to go over your bank deposits and calculate your gross income before visiting the lender.
Avoid Changes in Career
Banks and lenders get a little nervous when they see a borrower who has recently switched careers or left their job to become self employed. Statistically, if you have been with the same company, or successfully ran your own company, for two years or more, the chances of losing your income and being unable to pay the mortgage are significantly reduced. If at all possible, avoid a switch in careers before taking out a large loan.
Secure the Right Bank Statement Mortgage with San Diego Purchase Loans
You deserve an affordable mortgage that fits your specific needs. Contact Chad Baker and our tremendous staff today to learn more about the excellent options available from San Diego Purchase Loans, including top-quality bank statement mortgages.
As a first time home buyer, I wasn’t sure what to really expect, but Chad and his team made the process very clear and easy. Once the process was over, they didn’t just vanish either. They kept in touch and looked for opportunities that may benefit me. A couple years later, they found me a great refinance opportunity that saved me a lot of money! Once again, the process is long and grueling, but Chad and his team made it as painless as could be. Any barrier that I encountered, they found a quick solution to make it happen. Mortgages are a huge commitment and I wouldn’t pick any other team to help me make the right decisions.”
“Hey Chad – thank you so much to you in particular as well as your team. It’s been a real pleasure working with someone who’s as responsive and helpful throughout the process, as you’ve been. We really appreciate what you’ve done. ”
“We’re loving our new place and we’re very pleased with how smoothly everything went through closing. Thanks for keeping us up to date on the possibility of refinancing at a lower rate; we trust your judgement as far as waiting until the rate is around 5% lower before we refinance. We’re very interested in pursuing that if rates drop to that level. Thanks so much for all your help and personal attention!”