Bank Statement Loans are quickly gaining traction as the go-to mortgage solution for the self-employed, including real estate investors—but what are the bank statement loan requirements for 2023?
You might think that the required down payments are huge and credit scores high, but that’s not the case. Guidelines are often more loose than conventional, even though you’re qualifying with bank statements in place of tax returns.
They’re also more attractive than no-doc and hard money loans, which normally come with higher rates and shorter terms.Self-employed? See if you’re eligible for a bank statement loan.
Many real estate investors don’t realize that bank statement loans can be applied to primary residences as well as non-owner-occupied residential investment properties.
Investment property bank statement loans are particularly beneficial when the plan is to buy and rent, or refinance and rent for an extended period.
If you’re considering a bank statement loan, look over the loan requirements for 2023.
- Down payment: The down payment required is usually between 10-25%, but you can get a lower down payment if you have a higher credit score.
- Mortgage insurance: A significant advantage is that mortgage insurance is usually unnecessary, even if the down payment is under 20%.
- Loan providers: These loans are considered Non-QM (a non-Qualified Mortgage), but many mainstream national lenders now offer them.
- Credit score: For the best rates and lowest down payments, you will need a credit score of 600-660+. Some lenders will use the primary wage earner’s credit score to qualify, even with a co-applicant.
- Credit history: Regarding credit events, creditors don’t want to see any debt collections and require that at least two years have elapsed from the last foreclosure.
- Expense ratio: Lenders will deduct from 0-80% of bank deposit amounts to account for business expenses. The most common deduction is 50%.
- Loan purpose: The loan purpose can be for purchase, cash out or rate/term, and the debt-to-income ratio can be a maximum of 40% for housing and 50% for housing plus all other debt payments.
- Property Usage: The property type can be 1-4 unit residential homes, condos, and townhomes, while the property use/occupancy can be a primary residence, second home, investment property, or short-term rental.
- Loan terms: Loan type can be a 30-year fixed, ARM, or 40-year with a 10-year interest-only period
- Employment: Borrowers must be self-employed for two or more years
- Cash reserves: Most lenders require at least six months of cash reserves after the down payment and closing costs. However, reserve requirements may be as high as 12+ months for large loan amounts.
- Loan amounts: In most cases, the maximum loan amount is between $1 million and $5 million, depending on the lender. Usually, the minimum loan amount is $100,000 – $250,000.
- Prepayment: Regarding prepayment penalties, non-QM loans can include them, so asking the lender about their specific policy is recommended.
- Gift funds: When it comes to gift funds, some lenders allow them to be used for the down payment and closing costs—however, they may require a minimum personal funds contribution of 5%.
- Regarding appraisals: For loans that exceed a certain amount (commonly $1 million), two appraisals may be required.
Chapter 13 bankruptcies may need a shorter seasoning period if they were fulfilled and discharged. Generally, only one housing payment (either rent or a mortgage) can be 30 days overdue in the last 12 months. Those who live without rent are usually not considered for approval.Lenders are flexible. Submit your scenario even if you don’t meet the above criteria.
Bank statement loan FAQs
Stated income loans require no income verification from the borrower whatsoever. Bank statement loans require documentation—namely bank statements.
Personal bank account activity can be used to evaluate the borrower’s income if, for example, your business profits are deposited there. However, the evaluation becomes more complicated depending on whether anyone else uses the same account to deposit income—like a joint account between spouses. W2 income from a spouse can be used to qualify in some cases.
A little. Unless your partner is a co-applicant, the income on the account will have to be adjusted according to how much ownership is yours. A 50/50 split between partners would mean that only 50% of the deposits could count toward your application.
This is dependent on the lender. Most lenders will accept some gift funds, but expect them to require a minimum investment, and cash reserves after closing can almost never come from a gift.
Requirements vary from lender to lender, but the minimum range is 620-660. Keep in mind that the better your credit score, the more likely you are to get a lower interest rate for your bank statement loan.
When you’re self-employed or have your own business, you know that the more deductions you make for business expenses, the better it is for your bottom line.
However, deducting your business expenses often means cutting yourself out of a conventional mortgage loan—your tax return income doesn’t accurately reflect your true income.
But providing 3 to 24 months of bank statements could not only secure the mortgage you deserve but also save you thousands of dollars compared to other non-QM loans.
There are around 15 million Americans who are self-employed or own their own business. Add all the real estate investors nationwide, and you have a big portion of the overall economy.
Is it any wonder that conventional banks, credit unions, and lending institutions are beginning to wake up to the advantages of bank statement loans?Submit your loan scenario to get started.