What is a bank statement home loan?

A bank statement loan is probably the best program for a self-employed borrower who is seeking a home loan. Bank statement loans are beneficial because they allow the self-employed to count all of their incoming cash flow as income. This means that business items, such as expenses, are not counted against the money brought in, thereby not reducing overall income. The particulars of bank statement loans are explained in more detail below.

Why are bank statement loans good for self-employed borrowers?

In a nutshell, bank statement loans are great for the self-employed because they only require showing one or two years of bank statements to prove income. This is ideal for borrowers who don’t have the W-2s, 4606-T or paystubs required as part of a traditional mortgage application. A bank statement loan will allow you to use bank statements in lieu of these documents.  These loans are ideal if:

  1. You do not have traditional tax documents to back-up your income or
  2. You do have tax documents but your income appears smaller than what you actually take in due to deductions and write-offs
bank statement home loans for self-employed borrowers

How is a bank statement loan different from a conventional home loan?

Because bank statement loans require less documentation and thereby present more risk for the lender, it’s common that interest rates will be higher than a traditional mortgage. A higher down payment may also be required. However, having a great credit score can help you get a better mortgage rate and optimize your down payment options. If you are planning on applying for a home loan, avoid making any large purchases in the near future and look at debt that you can potentially pay off before applying. There are a lot of free sites that will show you an estimated credit score. While these are just estimated, the credit bureaus are required by federal law to give you a copy of your complete credit report once every 12 months. You can get a copy of your credit report by visiting www.annualcreditreport.com. A simple Google search will also yield a number of sites that provide tips for improving your credit score. One that we recommend is https://www.usa.gov/credit-reports.

What bank statements do I need to show?

While you will need to show at least 12 months of bank statements, it’s best if you can show 24 months as they could help you get a lower mortgage rate. The right lender can help determine if you should use your business bank statements or your personal statements, which is why it’s crucial to work with a lender who has experience in working with self-employed borrowers. Because these aren’t traditional mortgage loans, not all banks and credit unions will offer them. By completing our pre-qualification form, we can connect you with a lender who offers these non-traditional loan types.

Quick Summary:

Who can qualify for a Bank Statement Home Loan?
Any type of self-employed professional might be eligible for a bank statement loan. This includes business owners, entrepreneurs, freelancers, gig workers, contractors and many other types of self-employed professionals with a 1099.

Can I use a Bank Statement Loan Program for a home Purchase and Refinance?
Yes, bank statement home loan programs can be used for purchases, investment purchases, refinances and cash-out refinances.

How many years do I have to be self employed?
Most programs require 2+ years of self employment.

What are the minimum and maximum loan amounts for a bank statement home loan?
Most loan programs have a minimum loan amount of $100,000 and a maximum of $5 million.

How is self-employment proven?
Self-employment can be proven by showing the following: article of incorporation, a CPA crafted letter or a business license.

What is the minimum credit score for a Bank Statement Home Loan?
Lenders require a minimum credit score of 580. 

How is income calculated?
Income is calculated a few different ways. If providing personal bank statements, 100% of the business-related deposits will be used (no transfers). If using business bank statements, you can expect either 50% of the business related-deposits or more if a CPA letter and profit and loss (P&L) statement ties to the bank statement period.

How many bank statements are needed?
Several programs allow for 24 months, 12 months and even one month of bank statements. Programs are much more accommodating if you provide 24 months of bank statements.

If a bank statement loan doesn’t work for you, there are many other options to consider. Visit our Other Loan Programs page to discover if there is a better program for you.