Bank statement mortgage loans are a useful way to qualify for a mortgage when other avenues simply won’t work. These loans are especially useful for the self-employed, as they can help qualification without requiring the use of tax returns or paystubs.
By using bank statements, you are able to get the loan you need without using tax documents, which can often be inaccurate. Because of the tax structure and potential for write-offs, many business owners actually show a lower income than what they really make, which significantly hinders their ability to qualify for a larger amount. Self-employed also don’t have paystubs, so this isn’t an option for proving their income.
With a bank statement mortgage loan, you can use information from checking and savings accounts to significantly increase your borrowing potential, which could result in a better home for you and your family.
The most obvious document you will need for this type of loan, the bank statement will be used to verify your total earnings and ensure you bring in enough money to qualify for the specific loan. While the total amount of information will vary, you will generally need at least two years worth of bank-statement information.
The bank statement is essential for many reasons, but most of all it helps determine your DTI. DTI, or “debt-to-income ratio”, is a statement of your total debt load compared to your total earnings. For example, if you owe $2,500 in debt payments and earn $10,000 every month, your DTI is 25%. Obviously without the bank statement loan, the lender or bank cannot calculate the DTI.
Depending on the nature of your bank statement mortgage loan, you may be required to show proof of cash reserves. Cash reserves are essentially a holding of property that can be used in case you can’t make the loan payments. This is usually cash in an account, but it can also include retirement savings, investment accounts, and even physical property, such as equipment and real estate. How much you will need in cash reserves can vary, but you may need as much as two-years worth of reserves. For example, if the loan calls for a year’s worth of reserves, and the monthly payments are $2,000, you will need $24,000 in cash reserves.
If you have information on anything of value, bring this to the lender and you will increase your chances of mortgage approval.
Your credit score is obviously an important part of your borrowing potential, so you may need to bring information related to your profile, including your reports from various credit agencies. While your lender can assist with this process, it won’t hurt to bring this information along with you, even if the lender will double-check the information themselves. At the very least, it shows the lender you are organized and prepared for the application process.
In many cases, it may be useful to check your credit report months or even years before you plan on taking out a bank statement mortgage loan. By checking your credit report ahead of time, you can take the necessary steps to improve your overall score. To improve your score, of course, takes time, so give yourself plenty of months to make improvements, such as lowering your debt load and making consistent payments.
To help in your qualification, you will need to bring a list of assets that you currently own. These assets can include a wide range of different items, but anything of value can be included. These assets are simply used as possible collateral in the event that you can’t pay a loan, and while the bank actually seizing these assets is extremely rare, it will provide the lender with a small measure of reassurance.
Your assets can include valuable equipment, especially equipment that is owned by your business, and can also include financial stocks, mutual funds, and retirement accounts. Even atypical items, such as valuable jewelry, could be a potential asset that increases your chances of mortgage approval. If you have any way to prove that you own these assets, show those documents to the lender.
If you or your business has ownership in any other real estate properties, you can use this as a form of collateral for your loan. For example, if you have a second home, you could use this property to increase your chances of approval. This is especially true if the property you own is completely paid for. Any commercial or residential property that you own could be used to increase your chances of approval on a bank statement mortgage loan, so bring this information with you when you visit the lender.
Many borrowers, especially people who are purchasing rental property as an investment, will prefer to close the loan under an LLC. If you are going this route, make sure you bring all the necessary information to prove that you actually own the business. It might seem simple, but leaving this information out could create delays. You might also need to discuss the nature of the business and the ownership structure with the lender before the loan is finalized.
Using an LLC to close a loan brings numerous benefits, but most of all it reduces risk to your personal finances and your business. Having an LLC ensures that your business is a separate entity, so if anyone sues your company, they can’t go after your personal assets.
Qualifying for a bank statement mortgage loan is easy when you work with an experienced lending agent. Contact Chad Baker and the team at Home & Mortgage to learn more about our bank statement loans, as well as other financing options that might be ideal for you.
From basic conventional loans to complex jumbo loans, we are here to help you get the right loan for you specific purchase.
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I hope you enjoyed reading this article. It’s my goal to keep you updated with the latest real estate mortgage news. I’m proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for LendUS. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2017. Got a question for Chad? Call (858) 353-8331 or submit your question online