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Definitive Guide To Bank Statement Home Loans 

Written by Banks Editorial Team
Updated August 31, 2023
5 min. read
Written by Banks Editorial Team
5 min. read

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Are you self-employed and struggling to qualify for a traditional mortgage due to fluctuating income or complex tax returns? A bank statement home loan might be the solution you need to purchase your next property.

These loans allow borrowers to qualify for a mortgage based on their bank statements rather than tax returns, making it a more accessible option for those who don’t fit the mold of a typical homebuyer. That said, bank statement loans come with benefits and potential drawbacks to consider before deciding if they’re a good fit for your unique situation.

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What are Bank Statement Home Loans?

This type of home loan allows you to qualify for a mortgage based on a thorough review of your bank statements and the deposits listed. Instead of using the net income from your tax return, lenders assess deposits and average daily balances over a specified period. 

When applying for a bank statement home loan, you’re required to provide the lender with approximately 12 to 24 months’ worth of bank statements. The lender will also assess your financial health, credit score and debt-to-income (DTI) ratio before making a decision.

Why the Need for Bank Statement Home Loans?

As a self-employed borrower or a small business owner, you may need help to obtain a mortgage using traditional methods. Unlike most employees who receive regular pay stubs and W-2s, your income may not fall into these categories, making it difficult for lenders to verify your financial standing. This is where bank statement home loans come into play.

Bank statement home loans, also known as stated income loans, are specifically designed for self-employed borrowers and business owners who do not have the typical financial documents required for a conventional mortgage. Instead, these loans rely on your bank statements to help demonstrate your ability to make mortgage payments. By providing 12 to 24 months of bank statements, you can show a consistent flow of income, even if your tax returns or other records may not adequately reflect it.

Who is a Bank Statement Home Loan Best For?

As mentioned above, a bank statement home loan can be an excellent option for individuals who have difficulty documenting their income through traditional means. These include self-employed borrowers, independent contractors, small business owners and gig workers. 

Advantages of Bank Statement Home Loans

Here are some key benefits of these mortgage products: 

Flexibility in Proof of Income

Bank statement home loans offer more flexibility in proving your income than traditional mortgage options, which typically require W-2s and tax returns as proof. Using only your bank statements, you can demonstrate your ability to repay the mortgage without needing to provide conventional income documentation. 

Ideal for Self-Employed Individuals

Bank statement loans cater to self-employed individuals who have difficulty meeting the documentation requirements for traditional mortgages. With a bank statement loan, you can use your bank statements as the primary source of income verification, making the process simpler and more efficient.

May Offer Higher Loan Limits

Some bank statement home loan programs may offer higher loan limits than traditional loans. That said, these loans might come with higher interest rates or require larger down payments due to the increased risk they pose to mortgage lenders.

Can Be Used for a Second Home, Vacation Home, or Investment Property

Bank statement loans are not limited to primary residences. They can also be used to purchase second homes, vacation homes or investment properties.

Disadvantages of Bank Statement Home Loans

There are also drawbacks to be aware of. 

The Challenge of High-Interest Rates

Since these loans are classified as non-qualified mortgages, lenders consider them riskier. This often leads to higher interest rates than traditional mortgages. Despite being able to afford the loan, you could incur substantially higher borrowing costs. 

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Extra Scrutiny on Bank Statements

When applying for a bank statement home loan, be prepared for extra scrutiny on your bank statements. Lenders will carefully examine your statements to verify your income and financial stability. You should be aware that inconsistencies or unexplained transactions can raise red flags with lenders, possibly leading to your application being denied. 

May Require a Higher Down Payment

Another drawback of bank statement home loans is the potential for higher down payment requirements. Due to the increased risk associated with these loans, lenders may require a larger down payment compared to traditional loans. This can be a significant hurdle if you have limited savings or need help accumulating funds for a down payment.

Qualification Criteria for Bank Statement Home Loans

When considering a bank statement mortgage loan as a self-employed individual or small business owner, it’s essential to understand the qualification criteria. Meeting these requirements can get you closer to securing a mortgage that suits your unique financial situation. Here’s what you’ll generally need: 

  • 12 to 24 months of consecutive bank statements 
  • A credit score of at least 600 (or 680 to qualify for competitive terms)
  • Cash reserves (the amount varies by lender)
  • Relevant business documents (i.e., CPA letter verifying your self-employment status)
  • Business financial statements (i.e., operating license, profit and loss statements)

If you do not qualify for a traditional mortgage lender, consider an alternative option like Top Flite Financial. They are known to have some of the most flexible credit guidelines in the mortgage industry, meaning you have a better chance of securing a loan, even with less-than-perfect credit. For example, you could get approved for a home loan or mortgage refinance with a credit score as low as 500.

Offering a wide range of mortgage loan products and refinancing your mortgage to get the cash to fund a project or save on your mortgage payments, Top Flite Financial can help you close a loan in just a few weeks. 

If you want to inquire about their home loans, submit a quick questionnaire, and a mortgage expert will contact you to discuss your options.

How to Prepare for a Bank Statement Home Loan Application

Below is a more detailed look at how to prepare for the application process. 

Assess Your Eligibility

Before applying for a bank statement home loan, determine if you’re eligible. Generally, this type of loan caters to self-employed individuals, business owners, or those with irregular income. Most lenders require 12 to 24 months of consecutive bank statements as proof of income. Assess your financial situation and ensure your bank statements reflect a stable income before proceeding.

Regularize Your Income Deposits

When applying for a bank statement home loan, ensure that your income deposits are regular and consistent. Mortgage lenders look for proof of stable income, so having a clear record of deposits in your bank statements is vital. Organize your finances and maintain a consistent deposit schedule to minimize the risk of denial. 

Keep Your Bank Statements Clean

Lenders examine your bank statements closely, so keep them free of any suspicious or unusual transactions. Avoid overdrafts, large cash deposits, and any other activities that may raise red flags. Develop good financial habits, such as timely bill payments and budgeting, to maintain clean bank statements and improve your standing with mortgage lenders.

Choosing a Bank Statement Home Loan Provider

When selecting a bank statement home loan provider, research various lenders and their loan programs to identify which best suits your needs. Evaluate factors like interest rates, loan terms and reputation. Also, look for lenders specializing in these loans to get a more seamless lending experience. 

The Process of Acquiring Bank Statement Home Loans

Once you’ve confirmed you meet the eligibility guidelines, here’s what to do next: 

  • Research lenders and compare loan offers. 
  • Formally apply for a bank statement loan. 
  • Submit the required documents. 
  • Receive a lending decision 
  • Sign on the loan documents. 

Is a Bank Statement Home Loan Right for You?

Bank statement home loans enable borrowers to qualify for a mortgage based on their bank statements rather than tax returns. This option can be particularly useful if you’re self-employed or have a variable income, making it difficult to provide standard financial verification. By using your personal or business bank statements, you can demonstrate a consistent cash flow to the lender, increasing your chances of loan approval.

When considering a bank statement home loan, evaluating whether this type of loan is the right fit for your situation is essential. Suppose you have a strong credit history, a stable income, and sufficient savings. In that case, this type of loan may be ideal for you, as it allows you to avoid the stricter documentation requirements associated with traditional mortgage loans.

Furthermore, individuals with fluctuating, irregular or seasonal income may also find bank statement loans more suitable, as they take into account your average monthly deposits over a period of time rather than just your tax returns.

However, it’s worth noting that bank statement home loans often come with higher interest rates and more stringent requirements compared to traditional mortgage loans. To illustrate, lenders may require a larger down payment, a higher credit score or additional financial reserves to cover potential risks associated with self-employed borrowers. Consequently, assessing your financial situation and comparing several loan options is best to determine if a bank statement home loan is the right fit for you.

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