COVID-19 has created many problems for small businesses; from maintaining enough revenue to remain open to making sure they follow proper social distancing protocols. Another challenge for many self-employed workers that has been around since before the pandemic is being able to secure a mortgage loan. Most conventional home loans require pay stubs and W-2’s, which self-employed borrowers cannot provide.
One solution that has become a popular choice in recent years being offered by some lending institutions is a bank statement loan. In this program, lenders look at the borrower’s bank statements over a certain period to determine if they can produce enough income to warrant approval of a loan. Like any loan, the lender wants to make sure the borrower can pay back the loan once it’s approved. As long as you can show you have a good track record of paying off debts and have maintained a steady income, you may qualify. There are usually specific minimum requirements, such as credit score, loan amount, debt-to-income ratio, and a continuous self-employment time frame, usually two years. If you are using personal bank statements, you have to have at least 25% ownership of the company, and if you are using company bank statements, you will need to own at least 50% of the company.
In addition to bank statements, lenders may require other documents, including:
- Personal tax returns for two years
- Business tax returns for two years
- Business license
- Balance sheet
- Year-to-date profit and loss statement
- Rent or mortgage payment canceled checks
- Additional income
- Earnings statement
Just as with any home loan preparation, you want to put yourself in the best position to be approved for a bank statement loan. Some things you should do before applying include:
- Pay down as much debt to improve your credit score
- Lower your debt-to-income ratio to 43% or less
- Save for as much of a down payment as possible – at least 10%
- Maintain clean, easy to follow business records
- Work with a lender who has experience with bank statement loans
To find out if you qualify for a bank statement loan, reach out to the experts at NASB at 855-921-4921, or click here for more information.