Bank statement mortgages help make home ownership more accessible to borrowers with non-traditional income. You can use your bank statements instead of tax returns to demonstrate your ability to afford a home loan, and perfect credit isn’t always required. But before you apply, it’s vital to understand how bank statement mortgages differ from traditional mortgages and the criteria you’ll need to meet to qualify for a home loan.
Can You Get a Mortgage Based on Bank Statements?
Yes, some lenders will approve you for a mortgage based on statements from your bank accounts. This home loan product is referred to as a bank statement loan program.
Bank Statement Mortgages vs. Traditional Mortgages: The Differences
When you apply for a traditional mortgage, the lender will request recent paystubs, tax returns and W-2s to verify your income and determine if you qualify for a loan. But with a bank statement loan, these financial documents aren’t needed. Instead, you’ll need to provide the lender with bank statements for the past 12 to 24 months. Then, they’ll analyze the deposits to determine your monthly income and if it’s sufficient for a mortgage loan.
Is a Bank Statement Mortgage Right for You?
A bank statement mortgage could be viable if you’re a self-employed individual, independent contractor or small business owner without pay stubs and W-2s. However, you may find getting approved for a traditional mortgage challenging since the lender will only consider your tax return net earnings (or what’s left of your income after write-offs).
Requirements of a Bank Statement Mortgage
Each lender has its own set of eligibility criteria for bank statement mortgages. However, these are some general guidelines to keep in mind before applying for a loan:
Property Type
Bank statement mortgages can be used to purchase a single-family home, condo or townhome. In most instances, the property can be used as a second home, a vacation home or an investment property.
Employment History
Most lenders prefer that you are self-employed or work as an independent contractor for at least two years to qualify for a bank statement loan. However, seasonal workers, gig workers and non-traditional earners may also qualify for a bank statement home loan.
12 to 24 Months Bank Statements
Depending on the loan product you select, you’ll need to provide 12 or 24 months of your most recent business or personal bank statements.
Additional Documentation
A letter from your accountant may also be required to confirm that you are self-employed. You may also be required to provide a copy of your business license and statements for investment or retirement accounts.
What Do Mortgage Lenders Look for in Bank Statements?
Here’s what mortgage lenders look for when reviewing bank statements:
Positive Account Balance
If your account balance is negative, it signals to lenders that you are stretched too thin or have trouble responsibly managing your income.
Little to No Overdrafts
Overdrafts are also perceived negatively by lenders. So your bank statements should have very few or no overdraft fees to have the best chance of getting approved for a mortgage.
Consistent Monthly Income Deposits
Your monthly income deposits should be consistent. Any unusually large deposits may cause lenders to believe you’ve taken out a loan to cover your down payment or closing costs that aren’t yet showing up on your credit report.
Funds to Cover At Least 10% Down Payment
You’ll generally need a down payment of 10 percent to secure a bank statement loan. Be mindful that a higher down payment could help you avoid a higher interest rate and possibly steer clear of private mortgage insurance. The fees on your home loan could also be lower with a generous down payment.
Funds to Cover Mortgage Payments and Closing Costs
The lender will also confirm that you have enough funds on hand to cover closing costs and mortgage payments for up to six months (or 12 months in some instances).
When Income Was Deposited to Your Account
Any recent large deposits can also raise suspicion with the lender unless there’s a valid reason for the significant increase in the balance. This could include an inheritance, job promotion or bonus from your employer. If it’s a monetary gift from a friend or relative, you must disclose this information to the lender to determine if you can use the funds when you buy a home.
Where to Get a Bank Statement Mortgage
Bank statement mortgages aren’t readily available through most traditional banks, credit unions and online lenders. You’ll have to do some legwork to find reputable lenders who offer nontraditional mortgage products.
Angel Oak Mortgage Solutions is an option worth considering. It’s a full-service mortgage lender that provides innovative home loan solutions to borrowers with varying financial backgrounds.
The Bank Statement Home Loan is one of its more popular options. It caters to self-employed borrowers looking to buy or refinance a home. In addition, you won’t need to provide tax returns when you apply, which takes the added stress out of trying to qualify without the income documentation traditional lenders require.
Instead, you can get approved with 12 or 24 months of personal or business bank statements. Loan amounts cap at $3 million, and 40-year fixed interest-only bank statement loans are also available. Furthermore, you may qualify for a mortgage with a foreclosure, short sale, deed-in-lieu or bankruptcy if at least two years have passed.
To learn more about Angel Oak Mortgage Solutions and all they have to offer homebuyers, complete the online form to get started. A licensed loan officer will contact you to discuss your needs and the next steps you should take to move forward with the lending process.
Frequently Asked Questions (FAQs)
Below are some frequently asked questions related to qualifying for a bank statement mortgage.
Bank statement home loans can be used to purchase your next home or refinance your current mortgage. There are two types of refinancing options to be aware of. A rate-term refinance is often used by homeowners to get a lower interest rate and more affordable monthly mortgage payments. Or you can get a cash-out refinance, which lets you pull equity out of your home and convert it into cash. The lender will pay off your existing mortgage, disperse cash to you and give you a new loan that includes the amount you pull out.
Some lenders will approve you for a bank statement loan with a down payment as low as 10 percent. However, putting down less than 20 percent means you’ll likely be on the hook for PMI, which can add several hundreds of dollars to your monthly mortgage payment. The good news is PMI can be canceled once your loan-to-value ratio (LTV) is 80 percent or higher. You can calculate your LTV by dividing your outstanding mortgage balance by the property value. To illustrate, if you owe $385,000 on a home that’s worth $550,000, your LTV is 70 percent.
It depends. If you take a sizable amount of write-offs that make your taxable income too low to qualify for a traditional mortgage, a bank statement loan could be ideal. Independent contractors, freelancers, seasonal workers, side hustlers and irregular income earners should also consider bank statement mortgages to help achieve the dream of homeownership or expand their real estate portfolio.
Bank statement home loans make mortgage financing and refinancing more accessible to non-traditional borrowers. Still, they aren’t without drawbacks that should be considered before you apply. For starters, these loans pose an elevated risk of default to lenders compared to traditional mortgages. So, they often come with steeper borrowing costs to minimize the risk of loss. Another major disadvantage is the lack of leniency you’ll get with bank statement mortgages. More often than not, you’ll need good or excellent credit, a reasonable debt-to-income ratio and a sizable down payment to qualify for a loan. Some lenders also require six to 12 months of cash reserves before they’ll approve you for financing.
Most lenders allow you to use a bank statement home loan to acquire a vacation home, second home or investment property. Inquire with the lender to confirm.
There’s no cut-and-dry answer to this question. It depends on the lender you’re considering – some charge early repayment penalties should you decide to pay the balance in full before the loan term ends, and others don’t.
You’ll generally need two years of consistent, verifiable employment – whether you’re a traditional employee or self-employed – to qualify for a bank statement mortgage. The lender also wants to see steady income trending upward, and it helps if you’re employed in the same role or industry during this time period.
Bank statement home loans do not conform to Fannie Mae and Freddie Mac lending guidelines. Therefore, they are considered non-qualified mortgages and aren’t readily available through most banks and credit unions. However, you can find them through online lenders, like Angel Oak Mortgage Solutions. The terms are often competitive and rival those of traditional mortgage products in some instances.
