How Does a Bank Statement Mortgage Program Work?
In 2018, one of the best mortgage options for self-employed people comes in the way of bank statement programs. Put briefly, these programs allow applicants to verify income with bank statements (instead of the traditional method of using tax returns). This is great news for entrepreneurs, people with seasonal income, or others who may have non-W2 types of income. But what should you expect? How do these programs actually work? The first thing to understand, as always, is that specific requirements vary from lender to lender. While the programs and processes may be similar, it's always a good idea to do your homework, and explore multiple options to find the best fit. With that out of the way, let's look at some of the things you can expect from just about any lender offering a bank statement mortgage program.
Like any mortgage, your credit score has a direct effect on whether or not you qualify - and on the requirements of your down payment. Many bank statement lenders look for a minimum FICO score of 580, though some go as low as 500.
Keep in mind that the lower your credit score, the higher your down payment will have to be! Down Payment
Typically, the maximum loan-to-value ratio allowed is 90%, meaning you'll have to make a down payment of 10%. For lower credit scores (below 580), your down payment may look more like 20%. Each lender will be a little different, but this should help you prepare based on your current credit score. Loan Amount
In most cases, the maximum loan available for bank statement programs is $2 million, though some lenders will go up to the legal maximum of $3 million. The minimum, however, is less flexible. At a minimum of $100,000, it's important to know anticipate whether or not your housing needs will require a loan of this size or higher. If you're looking for a mortgage of less than $100,000, these programs are not for you! Bank Statements
This is the crux of the whole thing! Instead of asking for tax returns, your lender will verify your income by evaluating 12-24 months worth of bank statements. Typically, a lender uses this range of statements to determine an average monthly income.
Depending on your situation, you may use both personal and business account statements to show your income. For business owners, a lender may also require a profit and loss statement prepared by a CPA. If they do not require a P&L statement, you may only be able to use your personal bank statements.
Most home types are eligible with bank statement mortgages (unlike some of the alternatives). Different lenders may have slimmer options, but you should be able to find the program right for your needs.
With these primary considerations in mind, you'll be able to explore bank statement mortgage options that work for you. It's worth noting that seasonal income is still a viable option here, with your average monthly income determined from a year or two's worth of bank statements. You are also allowed to apply with a co-borrower using standard W2 income - they will just be verified in a different manner. As you prepare to explore bank statement mortgage programs, get all of your paperwork in order. Review your banking history over the last few years, as excessive overdrafts or insufficient fund issues over the last 12-months could potentially disqualify you. There are certainly exceptions, just be prepared if your banking history is a little rocky! Many types of income are viable for bank statement mortgages, and qualifying is easier than ever!