Just about everyone dreams of owning a home. If you're self-employed, it can be challenging to qualify for a mortgage loan. Income is typically verified through W-2 forms and income information provided by employers. Self-employed borrowers don't have this type of income documentation. Bank statement loan programs, however, are an option for self-employed borrowers to verify their income.
Qualifying for a Bank Statement Loan
Many mortgage lenders offer bank statement programs, although required qualifications vary by lender. However, there are some standard requirements that you can use as guidelines as you research lenders.
Bank statement eligibility
- Two-year minimum of self-employment. To be eligible for a bank statement loan, you must be self-employed for a minimum of two years. The lender will require proof of your self-employment status. This can be done by providing legal documentation such as a business license. Your lender will be able to give you specifics about the type of information they need to verify your status.
- 12-24 months of bank statements. Generally, they will require 12 to 24 months of bank statements. These could be personal bank statements, business bank statements, or a combination of the two to show qualifying income. The average total income is what will be used to calculate what you make every month.
- Good credit score. Having a good credit score is also essential when securing a bank statement loan. Your score will not only determine if you qualify but also the interest rate you will pay and down payment amount if needed. The source of your down payment will also need to be explained to your lender as you are not allowed to use gifted funds.
Your allowable debt-to-income ratio will vary depending on your income, credit, down payment, and other factors. Bank statement loans allow for higher debt-to-income ratios than conventional mortgage loans.
The maximum loan size on a bank statement loan is determined by the lender and can go as high as one million dollars. The type of property that can be purchased can vary from a primary residence, condo, vacation home, or secondary home.
You might have to supply a profit and loss statement along with your bank statements to the lender. Check with your lender in advance as a certified public accountant must prepare profit and loss statements.
Important information about bank statement loans
Other things you should know about bank statement loans:
- You can refinance your mortgage with a bank statement loan and also have a cash-out option.
- Bank statement loans come in the form of fixed-rate, adjustable-rate, and interest-only mortgages.
- Interest rates tend to be higher on bank statement loans than a conventional mortgage. They are generally higher than a standard mortgage. It's important to shop and look at a variety of lenders to get the most favorable terms.
NASB offers fixed-rate bank statement loans for self-employed borrowers who want to realize their dream of home ownership. Apply for a bank statement loan or give us a call at 855-465-0753.