Do you need a mortgage but don’t have the traditional two years of employment history? Are you a millennial who’s been working odd jobs or freelance gigs? Or are you a young professional just starting out in your career? If so, don’t worry - you still may be able to get approved for a mortgage. Bank statement loans are one option for borrowers who don’t fit the “traditional” mold. Here’s what you need to know about them.
Whether you need a small or large loan, we have the right option for your needs. Our different options allow us to meet any budget and help consumers with various financial problems in their lives by providing them access t o funds they deserve without sacrificing quality control on these loans as well!
1. Personal bank statement loan
What is a personal bank statement loan?
Personal bank statement loans are loans that look at a series of your personal bank statements.
These types of loans are becoming more common. With more people working multiple jobs as independent contractors or starting their own businesses, lenders found new ways to gauge whether a borrower can pay back a loan. Even if you cannot meet the traditional loan requirements, a lender gets a better idea of how your income works.
Personal bank statement loan scenario:
Imagine that you hold several freelance-type jobs. Your main gig is as a freelance writer. The work is relatively consistent, but you get paid by several different companies with whom you contract. While you may have a decent income from your work, there is no single W2 that showcases this.
By applying for a personal bank statement loan, your lender is going to look at your personal accounts to see what kinds of deposits are made over a series of months. They can take into account different seasons of your workload and get a more holistic view of your income.
What do you need for a personal bank statement loan?
A perfect candidate for a personal bank statement loan meets the general criteria for bank statement loans as well as the following:
- A minimum credit score of 620
- Seeking a loan of no more than $2,500,000
- Has a debt ratio of 43%
A typical personal bank statement loan is going to look at 12 months of bank statements. There are also options to look at 24 months instead. Typically, the 24-month option is for borrowers with a lower credit score (580 and above) with a debt ratio of 50%. Lenders look at the overall picture of your income, so giving them a bigger lens can often help them focus.
2. Business bank statement loan
What is a business bank statement loan?
If you own a business, you may opt for a business bank statement loan. This option is almost identical to a personal bank statement loan; however, instead of turning in 12 to 24 months of personal bank statements, you would turn in statements from your business.
This works for nearly any type of business, so long as it has its own business banking account. This is also ideal for individuals who own multiple companies. By using a series of bank statements, your lender gets a clearer picture of your business's income.
Business bank statement loan scenario:
Consider a scenario where you own a lawn care company in the Midwest. Over the summer, you hire a dozen people to help take care of lawns across your city. These seasonal workers make up the bulk of your workforce, but don't stick around all year. During the off season, you still have your business, but don't see the same kind of income as you do over the summer.
A W2 isn't going to reflect your actual earnings. Focusing only on the summer makes it appear as if you make much more than you do, while focusing on the winter would make it look like you don't earn enough.
In this type of loan, your lender looks at your business bank statements over the entire year to see the ebbs and flow of business. While it may require better discipline with your funds during the off season, seasonal work shouldn't disqualify you from obtaining a loan.
Owning multiple small businesses creates a similar situation. In some cases, no single business makes enough to show you are a reasonable loan risk. When the businesses are combined, however, a lender can provide funds with greater confidence.
What do you need for a business bank statement loan?
A perfect candidate for a business bank statement loan is someone who owns a business that meets the general criteria for a bank statement loan:
- Business uses pass-through taxes, like a sole proprietorship or LLC
- The business has its own bank statements, as opposed to being mixed with personal statements
- Must be considered in good standing
- The home is going to be owner-occupied, although there may be options for those investing in property
- The bank statements provided should be in good standing, with no negative balances
3. One-month bank statement loan
Bank statement loans that only require a single month's bank statement are scarce. This kind of loan allows the borrower to state his or her income on the loan application, but that income is not verified in a typical manner. Instead, the lender is going to look at your bank statement's activity to see if it makes sense with the self-attested income. That means that a single deposit won't play as big of a role as the transactions during that month.
One-month statement loan scenario:
Let's say you work as a commercial photographer or any other job that will have varying paydays. Indicate on your loan application that you make $50,000 a year and turn in your best month's bank statement. In that month, maybe you have a fantastic client that paid for a $10,000 shoot. In your mind, this should easily make it look like you earn more than enough money.
Still, the lender is going to look at the activity in the bank statement. If there is very little activity or it seems like you live a very simple life, they may deny the application. In the eyes of the lender, someone who consistently makes $10,000 a month is going to have more regular activity. It's possible that you simply live a frugal lifestyle, but the lender still may refuse based on what they think your bank activity looks like.
On the flip side, another scenario might be if you are self-employed as an Uber Driver. Your application indicates that you make $40,000 a year. Your bank statement shows a variety of payments for gas, oil changes, insurance, and other things associated with using your car for work.
At the same time, your statement shows a variety of deposits. Even if the math from that single month doesn't show a clear pattern to make $40,000 in a year, the lender still may approve your application.
In this case, the activity in your account is much closer to what the lender expects.
What do you need for a one-month bank statement loan?
The perfect candidate for a one-month bank statement loan is someone who meets the general criteria for a bank-statement loan as well as the following:
- The home being purchased will be owner-occupied
- The borrower has good credit
- The bank statement provided must be in perfect order, which means no negatives
- A large balance in the account is certainly helpful, but is not required
If you have been working as an independent contractor or employing yourself, it can be challenging to show a strong history of income. A one-month bank statement program allows you to confirm your potential income without necessarily having the history to back it up. These types of loans are not commonly approved, but it could be an excellent option for you.
Bank statement loans are a great option for borrowers who may not fit the “traditional” mold. If you’re ready to start your home financing journey, we’re here for you! Our team of experts will help guide you through the process and find the best mortgage product for your unique situation. Contact us today to get started!