What Do You Need For a Bank Statement Mortgage?
Bank statement mortgages are a necessary option for people without traditional w2 income, and may otherwise not be able to qualify for a home loan. The premise is pretty simple: these types of mortgages allow people to use bank statements for income verification because tax returns, w2s, and other more common documentation is either unavailable or doesn't accurately represent the applicant's financial situation. Freelancers, entrepreneurs, and even people who make the bulk of their living from tips can use bank statement programs to secure home loans when other loan types aren't an option. If this sounds like the type of loan you need, great! It's important to understand, however, what you might need to prepare to ensure your success!
First and foremost, you'll have to furnish your bank statements. Some loans require 12 months of statements, while others require 24. In some very rare cases, a loan program will only require the bank statement for a single month, but as you prepare, don't count on it as an option from most lenders! Your bank statements will show your balance, of course, but they also include some other critical information that lenders look for. They'll be able to see overdrafts, incoming checks and deposits, interest earned, the amount you spend on bills and other debts, and any penalties that have been levied against you. This is all valuable information as the lender assesses the risk of providing you with a mortgage.
This risk assessment is done by looking for several factors that show your ability to repay. These additional requirements will vary from lender to lender, and are likely to be more stringent than a typical mortgage. Your lender of choice will have their own specifics, but these ballpark figures can help you know what to expect: • A debt-to-income ratio (DTI) of 50% or better, meaning that less than half of your monthly income is going toward paying existing debts
• Information about other accounts - including full disclosure of assets, savings, and retirement accounts
• Any business license or associated permits • Approximately 20% of the home's value as a down payment • A credit score above 500 (some lenders may require a higher credit score)
Again, each lender will be a bit different, but if you're shopping around for a bank statement mortgage, it's a good idea to get your DTI in order - even if that means delaying buying a house to pay off some debts (likely improving both your DTI and your credit score). If you make your living from non-traditional employment, this is a great way to get a home loan... But remember that non-traditional income also means some non-traditional means of borrowing. You may be facing higher interest rates or other strict requirements. However, if you take the time to prepare your documentation and put forth the effort to get your finances in good standing, a bank statement mortgage should be able to help you finance your next home!