What is a Bank Statement Loan?

A bank statement loan is a non-QM loan (non-qualified mortgage) for self-employed borrowers, freelancers, gig workers and others with non-traditional income streams. Many mortgage lenders may not offer bank statement loans due to their perceived higher risks. Unlike traditional loans which require tax returns or pay stubs, these loans use bank statements – either business bank statements or personal bank statements – to determine your income. This allows self-employed individuals to show their earning potential without using net income figures that are reduced by tax write offs.

This type of loan is also called a bank statement mortgage loan and has flexible qualification criteria to make it easier for borrowers to qualify for the financing they need.

Definition and Explanation

A bank statement loan is a type of mortgage loan that allows borrowers to qualify based on their bank statements instead of traditional income verification methods such as tax returns and W-2s. This type of loan is ideal for self-employed individuals, freelancers, and entrepreneurs who have fluctuating incomes that are not accurately reflected in their tax returns. By using bank statements, lenders can assess your income based on the deposits made into your personal and business accounts over a specified period, typically 12 to 24 months. This approach provides a more accessible path to home financing for those who don’t see their full income reflected on their tax returns, making it easier for them to secure the mortgage they need.

How Bank Statement Loans Work

Instead of using traditional income documentation like W-2s or pay stubs, lenders review your personal and business accounts over a 12- to 24-month period. Loan officers will manually review bank statements and verify the information with the bank, ensuring the application process is smooth and tailored to your financial situation. Here’s how it works:

1. Bank Statements: Borrowers provide 12-24 months of bank statements from business accounts, personal accounts or both.
2. Income Analysis: The lender reviews your consistent income by looking at deposits and deducting any large, irregular deposits that can’t be verified.
3. Debt-to-Income Ratio (DTI): Lenders calculate your DTI ratio which is your monthly debt to monthly income.
4. Loan Amount: Based on your income, DTI and credit scores, lenders will determine how much you qualify for.
5. Loan Terms: You’ll get a custom mortgage offer with loan terms, interest rates and other details.

Bank Statement Loans in Boise

For self-employed and non-traditional borrowers bank statement loans offer:

• No Tax Returns Required: These loans don’t use your tax returns or net income so they’re perfect for those with large tax write offs.
• Flexible Qualification Criteria: Lenders look at your bank statements and cash flow so there’s flexibility for borrowers with irregular income.
• Higher Loan Limits: Many bank statement loan programs have loan limits above traditional loan limits so they’re great for purchasing high end properties.
• Better Loan Terms: Interest rates may be slightly higher but it’s a great option for those who don’t qualify for traditional financing.
• Easier for Self Employed Borrowers: No traditional income documentation means self-employed and small business owners can get financing that matches their financial situation.

Who is a Bank Statement Loan for?

• Self Employed: Entrepreneurs, freelancers and small business owners who don’t have traditional income documentation.
• Investors: Borrowers looking to purchase investment properties in the Boise real estate market.
• Non-Traditional Income Stream: Individuals with irregular or seasonal income but still have strong financial stability.
• Large Deposits: Borrowers who have large deposits in their bank accounts but no corresponding W-2s to back them up.

Who is a Bank Statement Loan for?

• Self Employed: Entrepreneurs, freelancers and small business owners who don’t have traditional income documentation.
• Investors: Borrowers looking to purchase investment properties in the Boise real estate market.
• Non-Traditional Income Stream: Individuals with irregular or seasonal income but still have strong financial stability.
• Large Deposits: Borrowers who have large deposits in their bank accounts but no corresponding W-2s to back them up.

Benefits of Bank Statement Loans

Bank statement loans offer several benefits to self-employed borrowers, making them an attractive option for those with non-traditional income streams.

Advantages for Self-Employed Borrowers

• Flexibility in Income Verification: One of the most significant advantages of bank statement loans is the flexibility in income verification. Instead of relying on tax returns, which may not accurately reflect your earnings due to deductions and write-offs, lenders look at your bank statements to determine your income. This can be particularly beneficial for self-employed individuals with fluctuating incomes.
• No Need for Tax Returns: Bank statement loans do not require borrowers to provide tax returns. This is a major advantage for self-employed individuals who often have complex tax situations that can make it difficult to qualify for traditional loans.
• Higher Loan Amounts: Compared to traditional mortgage loans, bank statement loans can offer higher loan amounts. This is especially beneficial for self-employed borrowers who need to finance larger homes or investment properties.
• Streamlined Underwriting Process: The underwriting process for bank statement loans is often more streamlined, resulting in faster approval times. This efficiency can make the mortgage application process less stressful and more straightforward for borrowers.

Bank Statement Loans vs. Traditional Loans

Traditional loans backed by Fannie Mae and Freddie Mac are popular but not for everyone. Here’s the difference between bank statement loans and traditional loans:

Documentation:

• Traditional Loans: Tax returns, pay stubs and detailed proof of income.
• Bank Statement Loans: Bank statements.

Self Employed Borrowers:

• Traditional Loans: Hard for self employed due to tax write offs reducing reported income.
• Bank Statement Loans: Look at gross deposits not taxable income.

Loan Limits:

• Traditional Loan Limits: Restricted by Fannie Mae and Freddie Mac guidelines.
• Bank Statement Loans: Higher loan limits so you can borrow more.

Interest Rates:

• Traditional Loans: Lower rates but stricter qualification.
• Bank Statement Loans: Higher rates reflecting the flexibility and risk.
  

Bank Statement Mortgage Loan Requirements

To qualify for a bank statement mortgage loan, borrowers must meet certain eligibility criteria. These requirements ensure that borrowers have the financial stability and creditworthiness needed to manage their mortgage payments.

Eligibility Criteria

• Credit Score: Borrowers must have a minimum credit score of 620 to qualify for a bank statement mortgage loan. This score demonstrates a borrower’s creditworthiness and ability to manage debt responsibly.
• Income Verification: Borrowers need to provide 12-24 months of bank statements to verify their income. Lenders will review these statements to assess the consistency and reliability of the borrower’s income.
• Debt Service Coverage Ratio: Borrowers must have a debt service coverage ratio (DSCR) of at least 1.25. This ratio compares the borrower’s income to their debt obligations, ensuring they have sufficient income to cover their mortgage payments.
• Down Payment: A down payment of at least 10% is required to qualify for a bank statement mortgage loan. The exact amount may vary depending on the lender and the borrower’s financial situation.
• Loan Amount: The loan amount must fall within the lender’s guidelines, which can vary based on the borrower’s creditworthiness and other factors. It’s important to consult with a mortgage lender to understand the specific requirements for your loan application.

By meeting these criteria, borrowers can take advantage of the flexibility and benefits offered by bank statement mortgage loans, making it easier to secure the financing they need for their home or investment property.

How to Get a Bank Statement Loan in Boise

Getting a bank statement loan involves several steps. While requirements vary by bank statement loan lender, here are the common ones:

• At least 2 years of self-employment history or consistent income from non-traditional income streams.
• 620 credit score or higher (varies by lender).
• 12-24 months of business bank statements or personal bank statements.
• Proof of reserves to cover closing costs, down payment and future payments.
• 10-20% down payment depending on the lender and loan amount.

Bank Statement Loan Options in Boise

Here are the loan options under bank statement loans:

• Primary Residences: For purchasing a home in West Boise or near Boise State University.
• Investment Properties: Use debt service coverage ratio (DSCR) to qualify based on rental income not personal income.
• Second Homes: For vacation properties near the Boise Foothills or Treasure Valley.

Why Boise for a Bank Statement Loan?

Boise real estate is hot with opportunities for first time homebuyers, investors and those looking for luxury properties. Easy access to outdoor activities, great schools and growing economy makes it a great place to buy a home or grow your real estate portfolio.

Whether you want a property near the Boise River, downtown or the Treasure Valley a bank statement loan can make it happen.

Phil Gustin: Your Bank Statement Loan Guy

I’ve been a mortgage lender for over 15 years and specialize in self-employed and non-traditional income borrowers. I’ll give you personal service and loan solutions that fit your situation.

Whether you’re a first-time homebuyer, seasoned investor or just looking for loan options for a bank statement loan program to get you financed.

Get Started Today

Ready to get started with a bank statement mortgage loan in Boise, ID? Contact me today. Let’s get the process started, see if you qualify and get you on your way to achieving your real estate goals.