Traditional mortgage loans usually require borrowers to present their W2s, tax returns, and pay stubs to verify their earnings. Bank statement mortgage loans are different in that they need documented bank deposits to verify an applicant’s income on a mortgage. Bank statement mortgage loans cater to borrowers who lack full-time employers and use your income information to regulate your loan amount. Borrowers with high income have a low debt-to-income ratio (DTI) which translates to a higher loan amount. In addition, providing lenders with traditional employment documents is not easy for most people, making this type of loan a suitable option.
How Does a Bank Statement Loan Work?
There are a lot of differences between a bank statement mortgage loan and other conventional loans. Ordinary mortgages require standard documentation
for lenders to verify the borrowers’ income. This includes tax returns for two years, three months ‘bank statements, W2 statements, and a minimum of thirty days’ worth of pay stubs.
Many people are unable to meet these requirements, primarily self-employed and small business owners. A bank mortgage statement is better suited for applicants who cannot meet these requirements. Lenders use the bank statements to determine the borrower’s ability to repay the loan. Bank statement loan applicants can use either personal bank statements or business bank account statements. This helps a lot of sole proprietors who do not have separate personal and business accounts.
Bank Statement Loans for Self Employed
Self-employed borrowers are allowed to access mortgage loans by presenting lenders with bank statements to verify income. Lenders, therefore, determine the borrower’s ability to repay the loan by assessing the flow of income in their personal or business accounts.
Self-employed applicants are exempted from the rigorous process of traditional mortgage loan acquisition. Bank statement loans only require the bank statements as verification of your eligibility. It is difficult for self-employed people to access such documents since they lack a permanent employee. Due to a lack of a steady income, these loans apply to many viable applicants.
People working as freelancers, small business owners, lawyers, consultants, and other professions in these categories are not likely to qualify for typical FHA or regular loans. The reason for this is the fact that their income is subjected to deductions and business write-offs. This makes it difficult to determine the actual amount of income earned.
However, bank statements reflect what self-employed borrowers earn, helping them acquire loans they wouldn’t qualify for under traditional processes. Moreover, with most people forced to switch from the regular workforce, you can still access these loans and enjoy the benefits of refinancing.
Regardless of whether you work for yourself, you can access different types of mortgage loans. For borrowers who have been self-employed for a while, you don’t have to worry about the conventional and FHA loan requirements. This applies to applicants with steady income reflected by bank statements. If you have good credit and put down a sizable down payment, increase your chances of getting a mortgage.
Most lenders will prefer to give you a loan if you have good credit, regardless of whether you are employed or not. Consulting an expert in mortgage loans helps assess different options and choosing the most suitable program.