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What Is a Bank Statement Mortgage?
For nearly any loan, especially a large one needed for most home purchases, a bank will need to take a look at your finances. More specifically, it will want a look at your credit score, your debt-to-income ratio, paystubs, and W-2. The two latter documents are standard fare for most potential buyers, but if you’re self-employed you are unlikely to have either. In most situations, you won’t be able to receive a loan without proof of net income, no matter how good your credit is.
Fortunately, many banks have recently started to offer bank statement mortgages, in which they look directly at your bank account over a certain period (usually 12–24 months, depending on the bank). As long as you meet a bank’s given requirements (again, this will vary depending on your location and your bank) you can get a bank statement mortgage and enjoy competitive interest rates.
Who Should Get A Bank Statement Mortgage?
Again, that decision falls to the borrower, but if you fall into any of the following categories, it might be worth looking into:
- Self-employed workers
- Anyone working in the “gig economy,” whether that means you’re a freelancer or just enjoy a good side hustle
- Independent contractors
- Anyone with seasonal income or other forms of irregular cash flow
How Can I Qualify For A Bank Statement Mortgage?
Bank statement mortgages are a relatively new type of loan, so there are more variables when compared to conventional loans. Not every bank will offer them, and those that do might have some variance in what criteria you need to meet. That said, here are the general requirements you should expect to meet to qualify for a bank statement mortgage:
- At least 12 months of consecutive bank statements (from the same account) so that lenders have a consistent picture of your ability to repay a loan
- A 45% maximum debt-to-income ratio, although lower is always better, no matter what kind of mortgage you are applying for
- A minimum of two years of self-employment
- A 660 FICO® credit score or higher
All told, these requirements aren’t too far off the criteria for a regular loan. But with an irregular, or at least harder to quantify, income flow, banks want to make sure that you’re responsible enough with your money to pay them back.
Pros and Cons of a Bank Statement Home Loan
For some self-employed buyers, a bank statement loan may be the best and only option, but it’s still a good idea to know what you’re getting into. We’ve broken down some of the key costs and benefits of this type of mortgage so you can come to your own decision about whether it may be best for you.
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Pros
As long as you can satisfy the criteria for a bank statement mortgage, you can expect to enjoy a lot of financial wiggle room when looking for your dream home.f a lender won’t even consider a loan without your standard proof of income, a bank statement mortgage may be the only way you are able to purchase a home. There’s no reason you should have to stick to renting just because you have your own business. With a bank statement mortgage, you can have your own home, too!
You can get a bank statement mortgage for more than just your first home. If you’re self-employed and looking to invest in real estate, this can be a great way of achieving that goal.
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Cons
Because of the nature of your financial situation, banks consider a bank statement mortgage to have a higher risk. You may have a firm grip on your finances, but lenders want to operate with confidence in your repayment, so these mortgages will often come with a higher down payment and higher interest rates (anywhere from 0.5–1% higher than a standard mortgage).
Bank statement mortgages are not purchased by government mortgage companies (such as Frannie Mae or Freddie Mac), which is another reason those interest rates are higher. If you’re looking for a conforming mortgage, that’s different than a bank statement mortgage.
How Can the Home Loan Expert Help?
At the Home Loan Expert, we know that a mortgage solution should be as flexible as you are. There is never a one-size-fits-all approach to something as significant as financing a home, and each potential buyer will have different goals and priorities for their short- and long-term finances. That’s why we want to use our expertise to help you weigh your options, and and help you move forward efficiently with the loan that’s right for you.
Whether you want to purchase a home or refinance your existing mortgage, we will get the process started in no time! And if you want to fill those minutes with some extra number crunching so you can map out a long-term plan, take a look at our easy-to-use mortgage calculator for some quick plug-and-play scenarios.
If you’re unsure of whether or not a bank statement mortgage is right for you, our Experts are happy to walk you through your qualifications, as well as your other potential mortgage options. Give us a call today!
Learn About Other Loan Types
Adjustable Rate Mortgage
When you’re shopping for a new home, one of your most important decisions will be what kind of mortgage to take out to finance your home. Your mortgage type will be the top factor that influences how much you can borrow(and thus what kind and size of home you purchase), as well as your monthly budget moving forward. For a variety of reasons, an adjustable-rate mortgage (ARM) can be an appealing choice in the short term, but it can seem scary as well. However, it’s important to understand how ARMs work, since this type of loan has repayment terms that may become less desirable over time.
FHA Loan
The home buying process can be overwhelming and stressful, especially if you’re buying your first home (or if your financial circumstances make it more difficult to get an affordable loan). For many home buyers, getting a loan insured by the Federal Housing Administration (FHA) can be extremely helpful in not only securing the necessary financing to buy but also achieving the dream of owning a home (even while facing tough financial situations). FHA loans allow lenders to make home buyers better deals, resulting in lower down payments, lower closing costs, and easier credit qualifying. Here, we’ll go over the ins and outs of FHA loans, including what they are, who qualifies, and what the process of securing one looks like.
Fixed-Rate Loans
Fixed-rate mortgages—also called “conventional mortgages”—are basically the bread and butter of the mortgage industry. And that’s because this loan type is still the most reliable way to finance your home, offering affordability, flexibility, and so much more. As their name suggests, fixed rate loans have the same rate throughout the entire term of the loan. So even if interest rates rise while you’re paying off your loan, your rate and payment amount are locked in for the entire loan term. That’s why fixed-rate mortgages are so popular–they offer protections that ARMs can’t.
