When applying for a mortgage loan to purchase a home, a lender is going to want to see the documentation that provides solid proof of your income history and current income status. Most lenders require this proof in the form of a tax return, but there are other forms of verification they may be willing to take. For borrowers that are self-employed or only get paid per job they complete (gig work), or are freelance, a tax return is not an accurate representation of their current financial situation.
For those who cannot provide substantial proof of income, the most traditional way in the mortgage application process, a bank statement loan is a great option. What do lenders look for on a bank statements with these types of loans?
What is a Bank Statement Loan?
A bank statement loan is the mortgage loan program that is offered to help some borrowers qualify for a mortgage that might not traditionally do so with your everyday conventional loan. Most mortgage types require that you provide tax returns to evaluate your income and ability to re-pay a mortgage. With a bank statement loan, a lender instead will use a collection of several bank statements to evaluate your income and financial situation.
Some of the Advantages of a Bank Statement Loan
A bank statement loan will come with a higher debt to income ratio allowing for 50% as compared to other mortgage loans. A debt-to-income ratio is the number of mandatory payments you make every month as compared to the amount of money you bring in from working and investments, etc.
- Some bank statement loans will accept credit scores as low as 500 depending upon a particular case
- There are often no private mortgage insurance requirements which can add up to an extra couple hundred dollars payment per month
- Bank statement loans offer the ability to finance a primary residence as well as a second home, or even an investment property
- Bank statement loans will require less paperwork as compared to a traditional loan and there’s no need to provide your tax return at all
What your bank statement shows and represents/ what a lender is looking for on your bank statement
With a bank statement loan your bank statement will be evaluated more heavily than looking at just your current bank statement or last month’s bank statement with a traditional loan. It is very important to understand what a lender will read from your bank statement. What it shows and what it represents.
A bank statement includes the following items that a lender will find helpful in determining your dependability to pay a mortgage loan:
- The cash balance of your account at the beginning of the dated period on the statement
- The entire amount of any cash in any form deposited into the account during the statement time
- The total number of transactions made to take money out of the account and where it went. This can include any automatic payments made for recurring bills and any cash withdrawn from an ATM, any cash withdrawn from a bank branch in person, and any purchases made with your debit card
- Any interest earned in the account
- Any service fees or penalties that were charged against the account including those for withdrawing more money than there is available in the account
- The current total cash balance of the account at the end of the dated timeframe on the statement
Special requests can be made for bank statements to be made for a custom period of time from the bank. For example, instead of supplying 12 separate statements for a yearlong period, you can request the bank make one statement that you can then supply to a potential lender.
What a lender will require from your bank statements
To qualify for a bank statement mortgage loan, a lender will want you to meet a number of requirements and want to see these provided through written proof on your bank statements.
- Income; this is one of the most important factors that a lender is going to look at when it comes to determining your eligibility for a bank statement loan. They want to know you will have a reliable source of income to be able to make any payments for the money they are lending out. Each bank will have its own requirement as to a percentage of available income that your bank statements reveal.
- Personal or business statements: can look over proof of income either from a personal account or a business account for a bank statement loan and some may accept both statements from both accounts to qualify for one loan.
- A longer period of statements: sometimes a lender will only require last month’s bank statement, but this is very rare most bank statement loans will ask for 12 to 24 months of bank statements to get a good income history and financial assessment
To find your best bank statement loan options in Mission Viejo and California, please contact me anytime. I have helped many borrowers secure bank statement loans in the state of California.