Bank Statement Mortgages: Quick Guide
Perhaps you've heard the term "bank statement mortgage" mentioned in passing, but don't know what they're all about. Well, today we're going to take a high-speed look at this unique approach to home loans, who they're for, and how they work. Keep in mind that every lender is a bit different, and the specific terms, requirements, and qualifying factors vary among institutions. The information here should help you determine if a bank statement mortgage is a worthwhile option for you. From there, you can explore lenders to find the home loan that meets your unique needs. Let's get started! Bank Statement Mortgage Defined A bank statement mortgage is exactly what it sounds like! Instead of verifying income with W2s, tax returns, or pay stubs, this type of home loan uses your bank statements - typically 12 to 24 months' worth - to determine a borrower's income and ability to repay. This type of mortgage is largely designed for self-employed people, like freelancers and entrepreneurs, who might not have consistent W2 income. Such individuals might also have odd or inaccurate tax returns because of write-offs, untaxed business distributions, and so on. Bank statements, then, are the most accurate reflection of income, and the best tool to use for showing a lender the ability to qualify for (and repay) a home loan. Some lenders may also require business owners to provide profit and loss statements. Non-QM Status
Bank statement mortgages are "non-qualifying mortgages" - which means that they don't have to conform to the requirements of "qualified" status. In short, this means that the loans are more flexible, and that individual lenders can set some of their own requirements. It also means that loan providers can make adjustments to mortgage products to meet the needs of individuals.
As previously mentioned, exact requirements for bank statement mortgages will vary from lender to lender. There are, however, a few things borrowers can expect when pursuing this type of loan. • Interest rates are often .5% to 1% higher than other loan types
• Some institutions will provide bank statement mortgages for credit scores as low as 500, but it will definitely depend on the lender • Loan-to-Value ratio (LTV) requirements will depend on your credit score • Debt-to-Income ratio (DTI) requirements will also depend on credit score, but many lenders allow for 50% or greater - it's also worth noting that personal debt factors toward DTI, but not business debt • Many bank statement mortgages require a borrower reserve of three to six months, meaning that you must have three to six months worth of mortgage payments in your savings
Bank statement mortgages are not for everyone. Depending on how a potential borrower earns their living, however, they might be exactly the right type of program to secure a home loan without standard W2s or tax returns. These loans are higher risk for lenders than standard qualifying mortgages, so interest rates, credit score requirements, and other qualifications might be a bit steeper than other types of loans. The agility they provide for nontraditional workers, however, makes them an important part of the mortgage landscape. This quick overview is meant as a starting point. If this type of mortgage seems right for you, contact lenders in your area to ask about the bank statement programs that fit your needs!