Homeowners are sitting on an average $185,000 in home equity, says Investopedia, and those with higher home values probably have access to a lot more.
Many are tapping into that equity to complete home improvements, pay off debt, settle a divorce, and accomplish other goals.
But there’s one problem for self-employed homeowners: most 2nd mortgage lenders require two years of filed tax returns to approve the loan. That can be a hassle, or downright impossible to provide.
Fortunately, lenders have introduced 2nd mortgage bank statement loans for self-employed homeowners.
It’s a no-tax-return 2nd mortgage, and here’s how to get one.
Start your bank statement 2nd mortgage.What is a “2nd mortgage bank statement loan”?
Just like a bank statement 1st mortgage, a 2nd mortgage bank statement loan uses bank deposits over the past 24 months to verify income.
This eliminates the need for tax returns. This helps self-employed applicants in a few ways:
- Avoid providing complex personal and business tax returns
- Get approved despite heavy write-offs
- Use the last 24 months of bank statements rather than waiting to file tax returns
The program works well for business owners, gig economy workers, 1099 contractors, and others who can’t qualify for a traditional HELOC or mortgage.
Are bank statement 2nds hard to get?
In many ways, a bank statement 2nd is easier to get than a traditional 2nd mortgage.
But you still need to follow a process and supply some documentation. Here’s what the process looks like.
- Contact a bank statement 2nd mortgage lender
- Prove self-employment
- Have your credit pulled
- Let the lender know your requested loan amount
- Supply 24 months of bank statements showing self-employment income bank deposits
- The lender calculates income based on bank statements to see if you qualify
- The lender orders an appraisal
- Sign final loan documents and get the funds
The process is similar to that of traditional 2nd mortgage programs, with the key difference of having to supply personal and business tax returns.
See if you qualify for a bank statement 2nd mortgage.Eligible use of funds and property types
You can get a 2nd mortgage on your primary home or vacation home. But, unlike most 2nd mortgage programs, you can also be approved for an investment property 2nd mortgage.
You also can choose what you want to do with the funds, no matter what type of property they come from.
- Pay off high-interest debt
- Make home improvements
- Down payment on a rental or vacation property
- Divorce settlement
- Legal settlement
- Create a liquidity cushion for your business
- Expand your business
Bank statement 2nd mortgage rates
As you might expect, bank statement 2nd mortgage rates are likely a bit higher than standard home equity loan rates.
But not by much.
Second mortgages are often based on prime rate, which is 7.75% as of this writing, plus a profit margin of 1-3% or more. So even a traditional 2nd mortgage that requires tax returns is going to be in the 9-10% range.
Bank statement 2nd mortgages will vary based on the current interest rate environment, and you may find that some lenders are very competitive with standard home equity loan rates.
Related: Bank statement 1st mortgage rates
Requirements for 2nd mortgage bank statement loans
Self-employment: You must be self employed. W2 earners may be considered if the bulk of your income is from self-employment.
Credit score: 640 score for primary/vacation homes. 660 for investment properties
Combined loan-to-value (CLTV): 85% total loan-to-value ratio including all liens for primary homes; 75% for investment properties.
Maximum loan amount: $450,000
Documentation: Bank statements only. No tax returns reviewed.
Property occupancy: primary homes, vacation homes, investment properties
Pros and cons
Pros
- Qualify without tax returns
- Potentially qualify for a larger loan
- Use business or personal bank statements
- Close faster
Cons
- Higher rates
- Lower maximum loan-to-value compared to full-doc HELOCs
- Must have “clean” bank statements with few NSFs and strong deposit history
Alternatives
Bank statement 2nds are the best choice for many homeowners, but other programs could be better for some.
100% LTV HELOCs: If you need the most cash possible, some lenders let you borrow 100% of your home’s value. These programs will require tax returns.
Investment property HELOCs: Bank statement 2nds will allow investment properties. But there could be lenders that offer higher loan amounts or loan-to-value maximums.
Bank statement cash-out refinance: You could refinance the primary mortgage, but open up a larger loan and take the difference in cash. This is a good option if you need to refinance the first mortgage anyway.
Start your bank statement cash-out refinance.No-doc cash-out loans: These loans consider the applicant’s net worth, credit score, and property rather than using any income documentation.
FAQ
Yes. Some lenders can approve second mortgage applications by looking at bank statements instead of tax returns.
Lenders typically require 12-24 months of bank statements showing adequate income from the business.
Yes. You can’t be a W2 employee and qualify. The majority of your income must come from self-employment income and deposited into a bank account.
Start your bank statement 2nd mortgage
Just a few years ago, lenders wanted to see two years of tax returns for home equity loans and lines of credit.
Now, new products are emerging to let self-employed applicants more easily tap into their home equity.
See if you qualify for a bank statement 2nd mortgage.Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
