Buying and owning a home is the American dream. However, for freelancers, self-employed individuals, and gig workers, securing a traditional mortgage can seem next to impossible. Many lenders rely on tax returns and W-2s to verify income, making it challenging for those with fluctuating or irregular earnings to qualify. Fortunately, bank statement loans offer an alternative solution to homeownership. This type of mortgage allows self-employed individuals who are aspiring homebuyers to use their bank statements as proof of income instead of needing tax returns.
In this blog, we’ll discuss how bank statement loans work, eligibility requirements, their benefits, and how to apply. If you’re self-employed and looking for a viable mortgage solution, bank statement loans may be the right option!
Key Takeaways:
Alternative Mortgage Solution for Self-Employed Borrowers: Bank statement loans provide a real path to homeownership for freelancers, gig workers, and self-employed individuals who struggle to qualify for conventional mortgages because of irregular income and lack of W-2s or tax returns.
Flexible Income Verification and Higher Loan Amounts: Instead of relying on taxable income, lenders evaluate 12-24 months of bank statements to determine income stability, often leading to higher loan approval rates with the potential of larger loan amounts.
Eligibility and Application Process: Borrowers often need a good credit score, a debt-to-income ratio under 50%, proof of self-employment, and a 10-20% down payment. The application process involves gathering financial documents, securing pre-approval, and submitting a formal loan application.
Key Considerations and Choosing a Lender: While bank statement loans offer flexibility, they may come with higher interest rates and larger down payment requirements. Researching and comparing lenders is vital for securing the best loan terms.
What Are Bank Statement Loans?
A bank statement loan is a type of non-conventional mortgage designed just for self-employed individuals who might not have traditional tax documents or consistent paychecks to verify income. Instead of needing W-2 forms, lenders assess 12 to 24 months of business or personal bank statements to determine income stability.
Who Can Qualify for a Bank Statement Loan?
Bank statement loans are designed for individuals who make income outside of conventional employment. This option helps those with strong earnings who struggle to meet standard mortgage requirements.
Bank statement loans are an ideal solution for:
Self-employed professionals (consultants, freelancers, small business owners)
Gig workers (rideshare drivers, influencers)
1099 independent contractors
Real estate investors or commission-based professionals
Are Bank Statement Loans Legitimate?
Yes, bank statement loans are completely legitimate and are widely used by self-employed individuals who struggle to qualify for traditional home loans. These mortgage options are offered by reputable lenders, like credit unions, banks, and specialized mortgage companies.
The key to ensuring your bank statement loan is legitimate is to work with a reliable lender, review all contract details, and take the time to compare loan terms.
Significant Benefits of Bank Statement Loans
Non-traditional mortgages, like bank statement loans, can provide several significant benefits over traditional mortgage loans, even more so for self-employed borrowers.
Below are a few of the many advantages bank statement loan solutions can provide.
No W-2s or Tax Returns Required: Lenders evaluate income based on bank deposits, not taxable income.
Flexible Income Verification: Helps individuals with non-traditional or fluctuating income sources.
Higher Loan Approval Rates: More accommodating compared to traditional mortgage lenders.
Opportunity for Competitive Mortgage Rates: With a strong credit score, borrowers can get reasonable loan terms.
Potentially Higher Loan Amounts: Since lenders evaluate deposits rather than net taxable income, borrowers may qualify for larger loans.
Eligibility Requirements
Just as every individual borrower is unique, so might the requirements of the lender. Each lender might have slight differences in the requirements they need from you.
However, most bank statement loan programs need:
12 to 24 Months of Bank Statements: Lenders look at consistent deposits every month rather than tax returns.
Minimum Credit Score: Can work with a mid-to-high credit score, but higher scores may unlock better rates.
Debt-to-Income Ratio (DTI): Many lenders allow a DTI of up to 50% for self-employed borrowers.
Proof of Self-Employment: Business invoices, licenses, or CPA letter verifying at least two years of self-employment.
Down Payment: Expect to put 10-20% down, depending on the credit profile and lender.
Applying for a Bank Statement Mortgage: A Quick How-To
Just like with eligibility requirements, some bank statement loan application processes may also differ. Because these types of mortgages are different from traditional options, the process is already unique.
However, here is how you can often expect to apply:
Gather Your Financial Documents
12-24 months of personal or business bank statements
Business license or proof of self-employment
Credit score report (aim for 620+)
Profit & Loss (P&L) statement (some lenders may request this)
Find a Lender Specializing in Bank Statement Loans
Not all mortgage lenders offer bank statement loans, so it’s vital to shop around for those that do. Make sure to do your due diligence and work with a lender that is experienced and reputable.
Get Pre-Approved
A pre-approval helps determine how much you qualify for and what loan terms you can get.
Submit Your Loan Application
Once pre-approved, submit your complete mortgage application and provide any and all supporting documents.
Underwriting and Loan Approval
Lenders will review your bank statements, credit score, and overall financial health before providing a final loan approval.
Bank Statement Loan Considerations:
Higher Interest Rates: These loans may have slightly higher interest rates than traditional mortgages.
Larger Down Payment: Many lenders require 10-20% down, compared to as little as 3% for conventional loans.
Stricter Lender Variability: Each lender has different approval requirements, so comparing lenders is crucial.
Top Bank Statement Loan Lenders
Working with the right lender is essential when applying for a bank statement loan. Not all lenders offer this type of mortgage, and their interest rates, requirements, and terms can vary. Researching and comparing lenders can help you find the right fit for your financial situation.
Below are some of the top lenders that provide bank statement loans.
Angel Oak Mortgage Solutions: A well-known lender specializing in non-QM loans for self-employed borrowers.
Griffin Funding: Specializes in bank statements and non-QM mortgages for self-employed borrowers.
New American Funding: Offers self-employed mortgage programs, including bank statement loans with competitive rates.
Luxury Mortgage: Provides 12-month bank statement loan solutions for borrowers with a strong financial history
CrossCountry Mortgage: A top lender for bank statement loans
Conclusion
For self-employed aspiring homebuyers struggling to qualify for conventional mortgages, bank statement loans provide a practical and flexible solution. If you’re self-employed and looking for a mortgage solution that suits your income structure, consider applying for a bank statement loan.
Are you ready to make your dream of homeownership a reality? Contact a mortgage expert to explore your options!
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