Bank Statement Loans

What Are Bank Statement Loans?

Bank statement loans are a type of non-qualified mortgage (non-QM) loan that enables borrowers to qualify for a mortgage using their bank statements instead of traditional income verification documents. These loans are particularly beneficial for self-employed borrowers, freelancers, gig economy workers, and business owners whose income may be irregular or difficult to document through standard means.

How Do Bank Statement Loans Work?

The qualification process for a bank statement loan involves submitting personal or business bank statements, typically over a 12 to 24month period, to demonstrate consistent income flow. Lenders analyze these statements to calculate the borrower's average monthly income, which is then used to determine their ability to repay the loan. This method offers a more flexible and accurate representation of the borrower's financial situation, especially for those with significant deductions that reduce their taxable income but not their actual cash flow.

Key Features and Benefits

1. Flexible Income Verification: One of the most significant advantages of bank statement loans is the flexibility in verifying income. Borrowers who may not have traditional proof of income can still qualify based on their cash flow, as reflected in their bank statements.​

2. No Tax Returns Required: Traditional mortgage loans require tax returns and W-2s, which can be problematic for self-employed individuals with numerous deductions. Bank statement loans eliminate this requirement, making it easier for these borrowers to qualify.​

3. Higher Loan Amounts: Since bank statement loans cater to borrowers with higher incomes, they often allow for larger loan amounts, making them suitable for purchasing more expensive properties.​

4. Competitive Interest Rates: While the interest rates on bank statement loans may be slightly higher than traditional mortgages, they are still competitive and reflect the risk profile of the borrower. These rates are often more favorable than other non-QM loan options.

5. Customizable Terms: Lenders offering bank statement loans often provide flexible terms to suit the borrower's financial situation and goals. This can include options for fixed or adjustable rates, varied loan terms, and interest-only payment periods.

Potential Drawbacks

1. Higher Down Payments: Bank statement loans may require higher down payments compared to traditional loans. This is to mitigate the risk associated with non-traditional income verification.

2. Stricter Lending Criteria: While these loans offer flexibility in income verification, lenders may impose stricter criteria regarding credit scores, reserve requirements, and debt-to-income ratios to offset the perceived higher risk.

3. Limited Availability: Not all lenders offer bank statement loan programs, so borrowers may need to seek out specialized lenders or brokers with experience in non-QM lending.