You earn your money differently, but when it comes time to get a mortgage you want access to the same loan options as people who aren’t self-employed. As you may have already discovered, some mortgage companies won’t work with people who don’t get paid with a traditional W-2 wage and tax statement. This is where a bank statement mortgage loan comes in.
If you’re like many sole-proprietors, you’re probably writing-off as many business expenses as possible. This business strategy is great for minimizing taxes owed, but not so helpful when it comes to qualifying for a home mortgage, where banks will be looking at your W-2s, pay stubs, and the income reported on tax returns.
If you have delayed purchasing a home because you don’t think you can get approved for a mortgage, don’t despair! Fortunately, there are mortgage companies that specialize in doing business with self-employed individuals. They fully understand how your financial profile is different from people who earn a regular salary as an employee. To meet the mortgage financing needs of self-employed people these mortgage companies offer a bank statement mortgage loan.
“No W-2, no problem,” is the answer of these direct lenders that specialize in mortgage loans for small business owners, freelancers, independent contractors, gig workers, and other self-employed individuals who have an unconventional income stream.
The bank statement mortgage loan application process is quick and easy. Once approved, the underwriting and funding/closing processes work the same as with any other mortgage loan. The only difference is in the use of bank statements to qualify the borrower.
A bank statement loan is very versatile and can be used to purchase a primary residence, a vacation home/second home, or an investment property.
How do bank statement mortgage loans work?
A bank statement loan considers the borrower’s bank statements to determine qualifying income. Applying for a bank statement mortgage loan doesn’t require W-2s or income tax returns. Some lenders that specialize in bank statement loans will evaluate a person’s income using a proportion of the revenue shown on their last 12 or 24 months of bank statements as a measure of income. They will also take into consideration the type of business the borrower operates.
This flexible yet tailored approach to lending makes it easier for successful self-employed individuals with consistent employment and earnings to qualify for a variety of loans including:
- Mortgage
- Mortgage refinance
- Refinance with cash-out at closing
Bank statement mortgage loan terms are typically 15-year and 30-year fixed, as well as interest-only. Fixed payment terms are great for people who prefer consistency. For self-employeds who want to free-up their monthly cash-flow the interest-only option is attractive because monthly payments include only the loan’s interest, not principal, so monthly payments are less.
Interest-only is a great flexible option for self-employed individuals who may run into seasonal cash flow challenges with their business. Many mortgage companies will let the borrower make payments toward principal when they have the money to do so. Interest-only can also work well for people who intend to refinance into a fixed rate mortgage or sell the property at the end of the interest-only term.
How is a bank statement mortgage loan different from other mortgage loans?
Bank statement loans are among a home financing product category called “non-qualified” mortgage loans. Also known as “non-QM,” these loans are outside of the requirements for “qualified” or conforming mortgage loans. This allows for more flexibility, which helps people who have a less traditional income stream qualify for a mortgage.
In January 2013, The Consumer Financial Protection Bureau issued the Ability to Repay and Qualified Mortgage (QM) Rule to implement provisions of the Dodd-Frank Act that requires lenders, before making a residential mortgage loan, to make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan. The rule took effect in January 2014 and the final rule went into effect June 30, 2021. Non-QM loans are those that do not meet these QM requirements — however, they must still meet each lender’s underwriting standards for credit quality.
Bank statement loans are experiencing surging popularity as people leave traditional employment and become independent workers and solopreneurs. With a bank statement loan, successful self-employed people are enjoying the rewards that come with owning their own home, including setting up their dream home office.
What do you typically need to apply for a statement loan?
- Your last 12 months of consecutive bank statements.
- Proof of at least 25 percent ownership of the company.
- Minimum 660 credit score (in most states).
- Minimum two years self-employment.
Bank statement loans provide the self-employed with home mortgage solutions not possible with conventional loans. Other people who can benefit from the flexibility of bank statement loans are first-time homebuyers, individuals with substantial assets but limited income, real estate investors, and seasonal business workers.
Where to find a bank statement mortgage loan
A quick online search will yield results for bank statement lenders in your area. Choose a lender that not only specializes in bank statement loans, but has demonstrated a solid reputation for customer service.
Whether you’re a small business owner or an independent contractor — whether you refer to yourself as an entrepreneur, freelancer, gig worker or solopreneur — a Bank Statement Mortgage Loan can get you in the door of homeownership.
About
Sprout Mortgage specializes in bank statement mortgage loans for self-employed borrowers. As a direct lender, Sprout provides a smooth loan process that includes personalized service every step of the way. Contact Sprout at (888) 539-0637 for a no-obligation mortgage consultation, or visit Sprout Mortgage to learn more.
