Bank Statement Loans

We didn't earn our identity as Self Employed Specialists for no reason.

Self-employed homeowners and homebuyers often face major hurdles when it comes to qualifying for home financing of any kind, purchase or refinance alike, due to low amounts of taxable income displayed on tax returns. It's only natural that you want to preserve as much of your hard-earned income as possible when tax season comes around, but doing so may put you at a large disadvantage when applying for home financing. Is your only alternative to lose tens of thousands to self-employed income taxes? Not when you consult with us. Say hello to the self-employed solution, the bank statement loan. Turn your deposits into qualifying income without the drag of tax-displayed deductions.

As of Q1 2022, self-employed workers now comprise around 11% of the entire US workforce. This puts the number of self-employed contractors and business owners in excess of 17 million individuals. The bank statement program is an effective solution for one of the most underserved groups of professionals in the US workforce, which often struggles with the obstacle of displaying adequate taxable income after deductions.

Let's take a closer look at this program:

Close as Individual or in LLC
Put Down as Little as 10% or Even Lower
Personal or Business Bank Statements Accepted
Qualify Income Using Only 12 or 24 Months of Bank Statements
No Tax Returns Needed. Expenses on Tax Returns No Longer Deducted

Expensing the costs of business on tax returns has caused innumerable self-employed workers to give up on obtaining home financing. Resigning yourself to forever renting can cost you hundreds of thousands in potential net worth built up by amassing equity in your home rather than paying a landlord. Likewise, holding off on a necessary refinance can have the same effect, especially if it would consolidate high-interest debt or lower your monthly payments. Read more below on how you can access powerful, self-employment minded home financing in our in-depth description below.

Bank Statement Loans

Minimum FICO Score: Varies
Available Loan Terms: 10-30 Years
Minimum Down Payment: Varies, 10% Typical
Maximum Rate/Term Refinance LTV: Varies
Maximum Cash Out Refinance LTV: Varies
Time From Bankruptcy: Varies
Time From Foreclosure/Short Sale: Varies
Mortgage Insurance (Y/N): Varies
Eligible Use: Primary, Secondary, Investment
Eligible Properties: Residential 1-4 Unit Properties
(Condos & Townhomes Eligible, May Need HOA Review)
(Can close within an LLC if desired)

When it comes to exemplifying the spirit of "having your cake and eating it too", bank statement loans are second to none for the self-employed homeowner or home buyer. How is this flexibility achieved?

A self-employed borrower usually believes they have to make one of two choices when preparing to qualify for home financing:

Choice One: Expense as many business costs as possible, lowering their taxable income and saving them tens of thousands each year, at the cost of home financing ability that accurately reflects their true ability to repay. Rather than the home of their dreams they were envisioning (and that they know they can truly afford), their taxable income leftover after deductions qualifies them for little more than a closet space.

Choice Two: Avoid expensing costs as much as possible, increasing taxable income significantly. They can now qualify for conventional or government financing, with a loan size that matches the home they'd like to buy, and payments they can actually make. They likewise significantly increase the check they cut to the IRS come tax season.

Now enter the Bank Statement Loan.

This program essentially converts your personal or business bank statement deposits over a 12 or 24 month period into qualifying income for a home loan. Usually a value of 50%-80% of total deposits can be used as qualifying income, which essentially grants your business a profitability margin of 50%-80% in the lender's eyes.

Bank statement loans are only one example of a wide variety of unique financing programs known as "non-QM Loans", or non-qualifying mortgage loans. Non-QM loans fall outside of the scope of the standards set for mortgage guidelines as per government-affiliated entities such as Fannie Mae, Freddie Mac, or the Federal Housing Administration. As lending large sums of money with relaxed guidelines is riskier for the lender, bank statement loans carry a higher interest rate than traditional loans with tighter guidelines such as conventional or FHA loans. Let's take a look on the merits of utilizing a bank statement program and expensing business costs as necessary, compared to restricting your ability to expense operational costs to qualify for a conventional mortgage.

In the state of California, displaying a net annual business income of $120,000 on tax returns results in approximately $20,000 in federal and state income tax. If, with your credit history and taxable income, you qualify for a conventional 30 year fixed mortgage at a 6% interest rate, your monthly principal and interest would amount to around $3,000 on a $500,000 loan amount. With a bank statement loan, a 7.25% rate on a loan of the same size would increase your total monthly principal and interest by $413 compared to your conventional loan payment, amounting to an annual total of $4,956 in additional cost.

But let's say that after necessary expenses and deductions, your displayed taxable income amounts to an annual net revenue of $80,000? Now, your annual state and federal taxes total a sum of approximately $10,000. By deducting necessary expenses on your taxes, you have saved $5,000 in unnecessary tax payments after the additional bank statement cost has been accounted for. If your business model requires a larger deduction than this model, your savings may amount to much more. Running the numbers yourself can reveal that in terms of keeping hard earned cash in your pocket, a bank statement program may be an incredibly effective solution.

Found This Helpful? Spread the Information:

Got Docs?

Getting Prepped for Approval

Documentation requirements for bank statement loans are much more relaxed than conventional or government financing for income history. However, they can be just as strict in other aspects, such as verifying proof of residency and identity as well as ensuring sufficient income remains after your future mortgage payment.

Bank statement programs also vary in requirements from lender to lender. To see a general list of documents you'll need for bank statement loans, check out our prior to approval checklist page.