Are Bank Statement Loans Non-QM? Know the Details

A bank statement loan is a type of Non-QM mortgage that uses bank statements to verify income rather than tax returns.

Non-Qualified Mortgage (Non-QM) loan options can help you get approved for more house than with traditional options.

These loans are based on deposits into your personal or business bank accounts, allowing alternative income sources and lending flexibility.

Bank statement loans: a powerful Non-QM option

Bank statement loans are non-qualified mortgage (Non-QM) loans that do not require borrowers to provide traditional income documentation such as pay stubs and tax returns.

Instead, borrowers can use their bank statements to demonstrate their income and ability to repay the loan.

One of the main benefits of Non-QM loans is that they provide greater flexibility.Unique financial circumstances or income streams may not be accurately reflected on traditional income documentation.

This includes self-employed individuals, small business owners, and other non-traditional income earners.

Another advantage of Non-QM loans is that they often offer more competitive interest rates and terms compared to traditional subprime loans.

This is because the lender can keep the loan on their books and not sell it off to a government-backed secondary market.

Non-QM borrowers know who will be servicing their mortgage and can expect more personalized attention from their original lender.

Non-QM loans are not bad or dangerous

Bank statement loans and other non-qualified mortgage products are not necessarily dangerous, but they come with unique risks and considerations. The main advantage is that they make it easier for some borrowers to qualify for a loan.

Non-QM loans are often the loan of choice for high-net-worth, high-income, and high-credit individuals with unique financial circumstances.

These borrowers may have significant assets but not traditional employment or income streams that can be documented through pay stubs or tax returns.

Bank statement loans and other Non-QM loans allow these borrowers to use their liquid assets and other financial information to demonstrate their ability to repay the loan.

Additionally, Non-QM loans can offer more flexibility in terms of the loan amount, loan-to-value ratio, and other factors that may not be available with traditional conforming loans.

This is especially beneficial for borrowers purchasing high-end properties or who have significant financial resources but may not meet the strict underwriting requirements of traditional mortgages.

Lender and borrower risks

Lenders wouldn’t offer this product if they were too risky for themselves or the borrower. But that doesn’t mean there’s no risk on their end.

It’s important to note that Non-QM loans typically come with higher interest rates and may have other unique terms and conditions.

Sure, there’s an additional layer of risk when approval is based on bank statements. But this is only because tax returns are the time-tested method of approval. Bank statements are a similarly reliable way to verify income, but this method hasn’t been around for decades, so lenders are a bit slower to offer these loans.

But the lender’s risk isn’t your primary concern. It’s yours. In fact, it’s your job as a real estate investor to push off as much risk to the lender as you can. If something goes south, the bank takes the hit, not you.

That’s why lenders charge a certain interest rate—so they can still make money if a certain percentage of loans go bad. No investor goes into a deal with that as their goal, but it does happen.

Letting the lender take on some risk is just good business sense.

Advantages of Non-QM loans

Not only are Non-QM loans, not “bad” they carry many significant advantages for borrowers.

Flexibility

Non-QM loans provide more lenient underwriting protocols than traditional conforming mortgages, which can benefit borrowers with unique financial situations. This includes self-employed individuals, small business owners, and those receiving irregular—but steady—income.

Higher loan limits

Non-QM loans offer extra convenience to borrowers looking to purchase high-end properties or who require borrowing sums higher than the conforming loan limit allows. With these Non-QM loans, buyers can access a greater loan amount—opening up more possibilities.

Asset-based lending

Non-QM loans offer borrowers a unique opportunity to leverage their liquid assets, such as stocks, savings accounts, and retirement plans when applying for a loan. This can be especially beneficial for those with significant holdings who don’t qualify under the conventional income criteria of traditional mortgage lenders.

Faster turnaround times

If you’re in a hurry to close on your loan or have special needs that necessitate rapid processing, Non-QM loans may be the way to go. These loans tend to require less documentation and underwriting than conforming ones so that they can get approved more quickly.

Investment opportunities

Investors can capitalize on Non-QM loans for a profitable return, as these loans typically offer higher yields, and the lender can retain them rather than sell into government-backed secondary markets.

Non-QM loan types

Non-QM loans are an excellent option for those who want to finance but don’t meet the traditional Qualified Mortgages (QMs) standards.

These products offer more flexible underwriting guidelines, along with alternate documentation of income when compared to conventional QM loans.

A few loan types currently available within Non-QM include the following.

DSCR loans

If you’re looking to buy an investment property and don’t want to show your income on tax returns, then DSCR loans are perfect for you. Instead of assessing the borrower’s earnings, the lender evaluates the cash flow from the property itself.

Asset depletion loans

Instead of income, the lender computes how much to lend based on a large cash reserve by dividing that sum into monthly payments.

Stated income loans

Despite the fact that alternative verification methods such as banking statements or property cash flow might be used for most stated income loans, Ability to Repay regulations still apply to Non-QM loan choices. Therefore, it is improbable to find an authentic stated income loan.

1099 loans

Certain programs provide borrowers the option to verify their income by utilizing either one or two years of 1099s, or even a combination of both bank statements and 1099s.

P&L loans

For this loan, lenders rely on the borrower’s CPA-submitted profit and loss statement to authenticate earnings.

Hard money loans

Hard money loans are a perfect solution for those seeking short-term financing, as they provide fast access to funds that can be used until the borrower can refinance their property into long-term financing.

Each loan type has its own set of advantages and disadvantages, and borrowers should work with a reputable lender to determine the loan type that best suits their individual needs.

By choosing Non-QM loans, borrowers can benefit from more flexible underwriting guidelines.

Do Non-QM loans come with high rates?

While it’s true that Non-QM loans that use bank statements or other alternative documentation may be more accessible for some borrowers, these loans can still come with higher interest rates compared to traditional QM loans.

This is because Non-QM loans are generally considered riskier for lenders since they typically involve borrowers with unconventional income streams, lower credit scores, or higher debt-to-income ratios.

That being said, borrowers who can demonstrate strong financial credentials may be able to negotiate more favorable terms and lower rates on their Non-QM loans.

Moving forward with a Non-QM loan

Bank statement loans and other Non-QM products are revolutionizing the mortgage industry by introducing a new paradigm for self-employed home buyers.