Bank Statement Loans

A bank statement loan is a NON-QM mortgage that uses your bank deposits to calculate income instead of tax returns or W-2s. This program is designed for self-employed borrowers who write off business expenses, reducing their taxable income but maintaining strong cash flow. Lenders typically use 12 or 24 months of personal or business bank statements and apply a percentage (usually 50-75% depending on the program) to your average monthly deposits to determine qualifying income.

Lenders review 12 or 24 months of bank statements and calculate the average monthly deposits. They then apply an expense ratio (typically 25-50%) to account for business costs, using the remaining amount as qualifying income. For example, if your average monthly deposits are $20,000, the lender might use 50% ($10,000) as your qualifying income. The exact percentage depends on whether you use personal or business statements, your business type, and the specific loan program.

You can use either personal or business bank statements, depending on how you operate your business. Personal bank statements typically receive a higher expense ratio (50-75% of deposits count as income) because personal expenses are already deducted. Business bank statements usually have a lower ratio (40-50%) to account for business operating expenses. Many self-employed individuals find personal bank statements easier since business accounts may have more transactions to explain.

Minimum credit scores typically start at 600, but 640+ is preferred for better rates and terms. Borrowers with 680+ credit scores receive the most competitive pricing. Credit scores below 640 may require larger down payments (25-30%) and will have higher interest rates. Recent late payments, collections, or derogatory marks can impact approval even with acceptable credit scores.

Down payment requirements vary by property type and credit profile. Primary residences typically require 15-20% down, second homes need 20-25%, and investment properties require 25-30%. Borrowers with credit scores below 640 or higher debt-to-income ratios may need to put down more. Larger down payments (30%+) can help secure better interest rates and offset other risk factors.

No, bank statement loans do not require tax returns or W-2s. This is the primary advantage for self-employed borrowers who write off significant business expenses. However, you will need to provide 12 or 24 months of consecutive bank statements, a profit and loss statement (P&L), and possibly a CPA letter confirming you're self-employed. Some lenders may request tax transcripts to verify you're filing taxes, but they won't use them to calculate income.

Bank statement loans can be used for primary residences, second homes, and investment properties (1-4 units). Condos, townhomes, and single-family homes are all eligible. Some lenders also allow non-warrantable condos and properties with unique features that traditional lenders avoid. Investment properties and second homes typically require larger down payments and may have slightly higher rates.

Most lenders require at least 2 years of self-employment history in the same industry, though some programs accept 1 year with strong compensating factors (high credit score, large down payment, significant reserves). You'll need to provide evidence of continuous self-employment through business licenses, contracts, or client invoices. Career changes or new businesses may require alternative documentation.

Bank statement loan rates are typically 1-3% higher than conventional mortgages due to the alternative documentation and higher risk profile. Current rates range from 6.75% to 9.50% depending on credit score, down payment, property type, and loan amount. Borrowers with 720+ credit scores and 25%+ down payments receive the best pricing. Rates are also influenced by the loan-to-value ratio and debt-to-income ratio.

Yes, bank statement loans are available for cash-out refinancing. You can access up to 80% of your home's value (75% for investment properties). This is popular among self-employed borrowers who want to access equity for business expansion, debt consolidation, or investment opportunities. Cash-out refinances require the same documentation as purchase loans: 12-24 months of bank statements and proof of self-employment.

Irregular or seasonal income is common for self-employed borrowers and can still qualify. Lenders average deposits over 12 or 24 months to smooth out fluctuations. If you have large one-time deposits (like selling equipment or receiving a loan), you'll need to document these so they're excluded from income calculations. Consistent business activity and an upward trend in deposits strengthen your application.

Yes, most bank statement loan programs require 6-12 months of reserves (mortgage payments including taxes and insurance). Investment properties may require 12-24 months of reserves. Reserves can include checking accounts, savings accounts, retirement accounts (70% of vested balance), and stocks/bonds. Larger reserve amounts can offset lower credit scores or higher debt ratios.

Bank statement loans typically close in 21-45 days, similar to conventional mortgages. The timeline depends on how quickly you provide documentation and whether the property appraisal is completed on time. Having organized bank statements, a current P&L, and all supporting documents ready can expedite the process. Complex financial situations or unique properties may take longer.

Yes, you can combine deposits from multiple personal or business bank accounts to maximize your qualifying income. All accounts must be in your name (or your business name) and you'll need to provide complete statements for all accounts used. Transfers between your own accounts will be excluded to avoid double-counting income.

Bank statement loans may be available 2-4 years after bankruptcy or foreclosure, depending on the circumstances and your current financial profile. Chapter 7 bankruptcy typically requires 2-3 years waiting period, while Chapter 13 may be 1-2 years after discharge. Foreclosures generally need 3-4 years seasoning. Strong compensating factors (high credit score, large down payment, significant reserves) can sometimes reduce waiting periods.

Some bank statement loan programs include prepayment penalties, typically lasting 1-5 years. These penalties compensate the lender if you pay off or refinance the loan early. Prepayment penalty structures vary: some are fixed percentages (3-2-1% declining over three years), others are soft penalties (only apply to refinances, not sales). You can often choose between a loan with a prepayment penalty (lower rate) or without (higher rate).

Absolutely. Bank statement loans are popular for real estate investors who want to expand their portfolios. Investment property requirements include 25-30% down payment, 680+ credit score preferred, and 12-24 months of reserves. Some programs allow up to 10 financed properties. The rental income from the subject property can be used to offset the mortgage payment in debt-to-income calculations.

Required documentation includes: 12 or 24 months of personal or business bank statements (all pages), a current profit and loss statement (year-to-date and previous year), business license or proof of self-employment, two years of personal tax returns (transcripts only, not used for income), credit report authorization, and asset statements showing reserves. You may also need a CPA letter confirming self-employment and explaining any large deposits.

Bank statement loans offer more flexibility in income documentation but come with trade-offs. Advantages: no tax returns needed, easier qualification for self-employed, faster approval for complex income. Disadvantages: higher interest rates (1-3% more), larger down payments required, prepayment penalties possible, and stricter reserve requirements. For self-employed borrowers with strong cash flow but low taxable income, the benefits often outweigh the higher costs.

Yes, you can add a co-borrower (spouse, business partner, family member) to strengthen your application. Both borrowers' incomes can be combined if both provide qualifying documentation. The co-borrower doesn't need to be self-employed; they can use traditional income documentation (W-2s, pay stubs). All borrowers must be on title and the loan, and the lowest credit score among borrowers is used for qualification.