Variations in Bank Statement Mortgages
For self-employed individuals, nontraditional mortgages are often the best options for buying a home. One of the more common types of these loans is a "bank statement mortgage" - named as such because they use bank statements to verify income instead of tax returns or other documentation. Not all bank statement mortgages have the same terms, however. Understanding the subtle differences can help you shop for your ideal home loan, as well as get the appropriate documentation in order before you even contact a lender.
Bank statement loans are available for both owner occupied and investment properties, and range in requirements based on a variety of factors. Most programs require the borrower to be self-employed or a 1099 contractor, but from there, they can be quite different. Like other types of mortgages, down payment, credit score, LTV, and more affect the ability to qualify - as well as the terms of repayment. Some lenders will require a credit score of 700 or better and a maximum LTV of 70% - while others will allow for a lower credit score (in the 600s) and a maximum LTV of 80%. With higher LTV (and lower credit score), the rates usually increase.
With a minimum amount of the $100,000 and a maximum of $3 million, bank statement mortgages can appeal to a wide range of borrowers. For business owners, the required bank statements may be a combination of personal and company finances, even including professionally prepared profit and loss statements. For 1099 employees or other types of borrowers, a lender will likely require 12 to 24 months worth of bank statements. In some instances, however, a borrower may only be required to provide 3 to 6 months' worth. It all depends on the lender! Of course, for fewer bank statements required or lower credit scores will likely result in larger down payments, higher rates, and more strict requirements. Conversely, if you credit is in great shape and you've got a significant down payment, bank statement mortgages can offer wonderful terms that help you secure an investment property or new home.
For people who work seasonally, living off income from assets, or business owners, these mortgage programs may be exactly what you need to move forward with home ownership. With plenty of variations available, and broadly different requirements from lender to lender, people with stable income from nontraditional sources can find just the right bank statement mortgage program for them!