Bank Statement Loans

Clifton Arrington LO > Services > Mortgage > Bank Statement Loans

Bank Statement Loans:

Bank statement loans allow self-employed borrowers to qualify for a mortgage using 12–24 months of personal or business bank statements to prove income instead of tax returns. Lenders calculate average deposits to determine cash flow, making it ideal for borrowers with high deductions. These loans often feature higher interest rates, larger down payments, and no private mortgage insurance (PMI). 

How They Work

  • Income Calculation: Lenders calculate the total deposits over a set period (12–24 months), minus estimated business expenses (often assuming a 50% expense ratio for business accounts), to determine a monthly income figure.
  • Documentation: Instead of W-2s and tax returns, you provide bank statements (personal or business) to prove cash flow.
  • Underwriting: Focuses on the consistency of deposits and the borrower’s ability to repay, rather than taxable income.
  • Loan Types: Available for primary residences, second homes, and investment properties.
  • Self-Employment Proof: Usually requires being self-employed for at least two years.
  • Credit Score: Generally requires a credit score of 620 or higher.
  • Down Payment: Typically requires a minimum of 10%–20% down, which is higher than conventional loans.
  • Loan Amounts: Can range up to $3–$4 million.
  • Rates: Interest rates are generally higher than conventional loans to offset risk. 

Who Benefits

  • Self-employed individuals, freelancers, 1099 workers, and small business owners who take significant tax deductions, reducing their taxable income. 

Pros and Cons

  • Pros: Uses actual cash flow instead of net taxable income, no tax returns required, and higher Debt-to-Income (DTI) ratios allowed (up to 50%).
  • Cons: Higher interest rates, larger down payments required, and potential for limited lender availability.

Frequently Asked Questions

Find answers to common questions below

A1: Bank statement loans are a type of mortgage that allows self-employed borrowers to qualify using 12–24 months of personal or business bank statements to prove income instead of tax returns.
A2: Lenders calculate average deposits from the bank statements to determine cash flow, making it suitable for borrowers with high deductions. These loans typically require higher interest rates, larger down payments, and do not include private mortgage insurance (PMI).
A3: Self-employed individuals, freelancers, 1099 workers, and small business owners who take significant tax deductions, reducing their taxable income, can benefit from bank statement loans.
A4: Borrowers need to provide 12–24 months of personal or business bank statements to prove their income and cash flow. They generally require a credit score of 620 or higher and a down payment of 10%–20%.
A5: Someone might choose a bank statement loan if they have high deductions that reduce taxable income but still maintain a strong cash flow, making traditional income verification through tax returns challenging.
A6: Bank statement loans are available for primary residences, second homes, and investment properties.
A7: Loan amounts for bank statement loans can range up to $3–$4 million.
A8: Pros include using actual cash flow instead of net taxable income and no tax returns required. Cons involve higher interest rates, larger down payments, and potential for limited lender availability.