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How do bank statement loans work?

A bank statement loan is a type of non-qualified mortgage or non-qm loan that works by requiring personal and/or business bank accounts instead of tax returns, W-2s and paycheck stubs to verify your income and cash flow. Most banks require a 12 month minimum for bank statements while others may require less. Even if the bank offers 12 or 24 months, a 24 month bank statement is preferred if you want better interest rates and terms. Although bank statement loans are more convenient for those who cannot provide income confirmation in the traditional way, there are some drawbacks to this loan of which you as the borrower should be aware. Bank statement loans typically have higher interest rates and require increased downpayments. This is in response to the risk the bank is taking on someone who cannot provide proof of income through taxes and paycheck stubs. The exact downpayment you will pay depends on your credit score. According to Wells Fargo, “Your payment history accounts for 35% of your score, how much you owe on loans and credit cards makes up 30%, the length of your credit history accounts for 15%, the types of accounts you have make up 10%, and recent credit activity makes up the final 10%.”

Do you need my personal and business statements?

There are two types of bank statements that a bank statement loan may require : personal bank statements and business bank statements. It is important to know that some banks may require a business bank statement over a personal one.
With a business bank statement, lenders can review your average daily, your P&L statement (profit and loss statement) or a summary of your company’s revenues and expenses during that specified period, cash flow, and income as a business owner and get some insight on whether or not you will be able to pay back the loan quickly. Be warned that a low balance and low/negative daily balances may label you as a risk and ward off potential lenders.

What are the differences between Jumbo and Non-Jumbo Bank Statement loans?

While both jumbo and non-jumbo loans are used to purchase properties and require the borrower to meet certain requirements such as minimum credit scores, income thresholds, repayment ability, and minimum down payments, jumbo loans are used to buy extremely high-priced properties that can reach millions of dollars. Jumbo loans are considered nonconforming which means they do not fall within the restrictions of the Federal Housing Finance Agency which was created to help strengthen the U.S. housing finance system. Unlike jumbo loans, conventional or nonjumbo can be conforming or nonconforming. For 2021, the national maximum for conforming conventional loans is $548,250 for a single-unit dwelling. Some conventional loans are nonconforming and are more difficult to get since they are not backed up by the government. Also, the interest rates for jumbo loans are higher than non jumbo loans by .5% -1.5% although the exact amount depends on the borrower’s credit score, equity or down payment, or loan amount.

What are the requirements for a jumbo loan?

Because jumbo loans aren’t backed by federal agencies, the requirements for this loan are more stringent based on the fact that mortgage lenders are taking a bigger risk when taking you on. When trying to get approval for a jumbo bank statement loan, you will need 12 or 24 months of your business or personal bank statements. Lenders will also need proof that you have liquefiable assets to cover at least six months’ worth of mortgage payments. Since jumbo loans are very high risk, you will also need to have a high credit score of at least 700. Lastly, a very low debt-to-income ratio will be needed. For comparison, a conventional loan’s debt to income requirement could be as low as 43%. For a jumbo loan, you will need one even lower.

How much is my down payment?

While a good benchmark for the expected down payment on a property can be around 20%, depending on your credit score, dti, and proof of a reliable income, a lender may require a 25-35% down payment. The reason down payments for jumbo loans are higher than conventional loans is due to the fact that the loan amount is higher depending on location, they are not backed by the federal government, and the loss for the lender is greater if you are unable to pay back the home loan.

Can I purchase any type of property?

Yes, you can purchase any type of property or real estate with a jumbo loan because there are no government restrictions since this type of loan is not backed by the government.

How do they score my business credit?

Business credits are scored by collecting credit information from your legal filings from state, local, and county courts, suppliers and lenders, and company background information from independent sources such as public records and collection agencies. The chief purpose of these scores is to have a measure of your company’s financial stability. High credit scores are often the result of steady and organized balance sheets or the summary of the financial balances of the company. In addition, the size and longevity of your company, or its credit history such as balances on outstanding loans and payment habits, whether or not you have any liens, or bankruptcies against your business, may also play a critical role. If you are set on improving your business’s credit score, you should make sure you get these fundamentals down.

How do you find the best loan option for you?

When you buy a home or any type of real estate, you may need a mortgage loan. Bank statement loans can also help with this. 99% of banks out there do NOT offer bank statement mortgages. Most brokers specialize in traditional full doc loans. So it’s difficult for self-employed borrowers to find these types of loans. That’s why they need to find a loan broker that specializes in non traditional mortgage programs. Many borrowers typically have substantial tax write-offs that make it difficult to provide proof that allows the mortgage lender to verify their income.

When looking for the right jumbo bank statement loan program, you must look at the 12 month vs 24 month bank statement requirements, DTI maximums and credit score minimums, how long the rates are fixed, and how much of the company you must own for both business and personal bank statements before signing on with the home loan.
Bank statement loans may be the best option for you if you cannot provide the necessary proof to verify your income. Researching what certain programs require is the most effective way to find the loan that works best for your financial and professional situation.