By Matt Allen
Vice President, Portfolio Lending (NMLS #415037)

A Comprehensive Guide to Bank Statement Loans

Oct 18, 2023

  • Mortgages
  • Non-QM Loans
  • Bank Statement Loan
  • Home Loans

Bank statement loans are a unique type of loan. They allow individuals to obtain financing without providing traditional proof of income, such as pay stubs or tax returns. These loans are particularly beneficial for self-employed individuals or those with non-traditional sources of income.

This guide explains bank statement loans: how they work, who they're for, and the pros and cons of this financing option.

What are Bank Statement Loans?

Bank statement loans are mortgage loans that use bank statements as proof of income instead of traditional income documentation. These loans have other names, such as self-employed loans or alternative income verification loans. This unique income verification approach sets bank statement loans apart from different types of loans.

Lenders check bank statements instead of pay stubs or tax returns to see if borrowers can repay the loan. This method of income verification can be a game-changer for those with non-traditional income sources.

How do Bank Statement Loans Work?

The process of applying for a bank statement loan differs slightly from that of a traditional loan. Borrowers must provide several months' worth of bank statements to the lender when applying for a bank statement loan. We carefully review these statements to assess the borrower's income and expenses. Lenders typically look for consistent deposits and a healthy average balance in the account.

The lender will check the borrower's income. They do this by adding the money deposited in the bank. People usually complete this over a certain period, typically lasting 1-2 years.

This method assists self-employed or irregular income individuals in obtaining a loan. The loan relies on their actual cash flow instead of their taxable income. This can particularly benefit those with significant business expenses that reduce their taxable income.

Who are Bank Statement Loans Suitable for?

Bank statement loans are particularly suitable for self-employed individuals needing help providing traditional income documentation. This includes freelancers, contractors, small business owners, and gig economy workers. These people may need consistent income or deductions that lower their taxable income, making it difficult to get a regular mortgage.

Additionally, bank statement loans can benefit borrowers with non-traditional income sources, such as rental properties or investments. Some individuals have income that is difficult to verify through traditional means. However, they can demonstrate their ability to repay the loan by providing bank statements. This flexibility in income verification makes bank statement loans a viable option for many borrowers.

Benefits of Bank Statement Loans

There are several benefits to obtaining a bank statement loan:

  • Flexible income verification. Bank statement loans allow borrowers with non-traditional income sources to qualify for financing by offering flexible income verification. This can be a significant advantage for those with fluctuating income or multiple income sources.
  • Higher loan amounts. Bank statement loans allow borrowers to borrow more money by considering the actual amount of money they have. People with higher incomes can get larger loans than with regular mortgages. This can be particularly beneficial for those looking to purchase a higher-priced property.
  • Faster approval process. Bank statement loans are faster to approve compared to traditional mortgages. This is because they require less paperwork and use the borrower's bank statements to verify income. This can be a significant advantage for those who need to secure financing quickly.
  • Opportunity for ownership. Bank Statement Loans assist self-employed or non-traditionally employed individuals in becoming homeowners despite their usual challenges. This can be a significant step towards financial stability and wealth building.

Drawbacks of Bank Statement Loans

While bank statement loans offer several advantages, there are also some drawbacks to consider:

  • Elevated interest rates. Unlike conventional home loans, bank statement loans usually carry a higher interest rate. Lenders perceive these loans as riskier because of the lack of traditional income documentation. This can result in higher monthly payments and a higher overall loan cost.
  • Stricter requirements. Lenders consider bank statement loans as alternative methods for obtaining funds. Consequently, lenders may impose more stringent requirements regarding credit scores, down payments, and debt-to-income ratios. This can make it more challenging for some borrowers to qualify.
  • Limited availability. All lenders may not offer bank statement loans, limiting the options available to borrowers. Researching and finding lenders who specialize in these types of loans is essential. This may require more time and effort compared to finding a traditional mortgage lender.

How to Qualify for a Bank Statement Loan

To qualify for a bank statement loan, borrowers must meet specific criteria:

  • Good credit score. A good credit score is typically crucial to obtaining a bank statement loan. However, the specific requirements may vary among lenders. This demonstrates to the lender that the borrower has a history of repaying their debts on time.
  • Stable bank account. Lenders will review the borrower's bank statements to ensure a stable and consistent cash flow. Maintaining a healthy average balance and avoiding overdrafts or bounced checks is essential. This demonstrates to the lender that the borrower can manage their finances effectively.
  • Proof of self-employment. Borrowers must provide evidence of self-employment, such as business licenses, tax returns, or other documentation that supports their income source. This demonstrates to the lender that the borrower has a reliable source of income.
  • Sufficient reserves. Lenders may require borrowers to maintain sufficient funds in their bank accounts. This is to demonstrate their ability to manage unforeseen expenses or mortgage payments. This provides a safety net for the lender if the borrower encounters financial difficulties.


Bank statement loans offer a viable financing option for self-employed individuals and those with non-traditional income sources. You can use bank statements as proof of income for these loans.

These loans provide flexibility and opportunities for homeownership. Obtaining these opportunities may be challenging through other means. However, it is essential to consider the higher interest rates and stricter requirements associated with bank statement loans.

When making a financial decision, it is crucial to research and compare lenders. This will help you find the best terms and options for your situation. Doing so lets you make an informed decision that aligns with your financial goals and needs. For more information on bank statement loans, contact NASB at 855-921-4921 or visit here.