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Bank statement loans have become an essential financing option for self-employed borrowers who often struggle to meet the rigid documentation requirements of traditional mortgages. These loans are a popular choice within the non-qualified mortgage (Non-QM) category, specifically designed to provide flexibility for business owners, freelancers, and gig workers whose incomes don’t fit the standard W-2 mold.
👉 Explore more about Bank Statement Loans
What is a Bank Statement Loan?
A bank statement loan is a type of Non-QM mortgage that allows borrowers to qualify based on their bank deposits rather than traditional income documentation like pay stubs or tax returns. Instead of scrutinizing W-2 forms and tax records, lenders review 12-24 months of bank statements to estimate monthly cash flow, providing a more accurate picture of self-employed income.
Who Should Consider a Bank Statement Loan?
These loans are ideal for:
- Self-Employed Entrepreneurs: Business owners who write off significant expenses, reducing taxable income.
- Freelancers and Gig Workers: Those with variable income streams from multiple clients.
- High-Net-Worth Individuals: Borrowers with significant assets but low reportable income.
- 1099 Contractors: Workers whose tax returns may not fully reflect their earning potential.
Key Benefits of Bank Statement Loans
- Flexible Income Verification: Qualify without W-2s or tax returns.
- Larger Loan Amounts: Higher borrowing limits compared to conventional loans.
- Asset-Based Qualifying: Use business or personal bank accounts to prove income.
- Faster Approvals: Streamlined underwriting, often with quicker closings.
👉 Ready to explore your loan options? Check out our Loan Comparison Calculator
How to Qualify for a Bank Statement Loan
While each lender may have unique guidelines, most bank statement loans require:
- 12-24 Months of Bank Statements: Personal or business accounts.
- Consistent Cash Flow: Regular deposits reflecting stable income.
- Credit Score: Often 620 or higher, but varies by lender.
- Down Payment: Typically 10-20% or more, depending on credit and financial profile.
- Reserves: Lenders may require 3-12 months of mortgage payments in reserves.
👉 Curious about other flexible financing options? Learn about DSCR Loans
Potential Drawbacks to Consider
- Higher Interest Rates: Typically higher than conventional loans due to added risk.
- Larger Down Payments: May require more upfront capital.
- Stricter Reserve Requirements: Often require substantial cash reserves.
- Limited Lender Options: Fewer institutions offer these loans compared to conventional mortgages.
FAQs About Bank Statement Loans
Can I use business and personal accounts to qualify?
Yes, most lenders accept either or both, but may calculate qualifying income differently.
Are bank statement loans available for investment properties?
Yes, these loans can be used for primary residences, second homes, and investment properties.
Do bank statement loans have prepayment penalties?
Often, yes, as they are considered higher-risk loans. Be sure to check with your lender.
Final Thoughts
Bank statement loans offer a flexible, accessible path to homeownership for self-employed borrowers. If you’re ready to leverage your bank deposits as income proof, consider exploring your options today.
👉 Estimate your potential savings with our Refinance Calculator
Read Next
- What Are DSCR Loans and How Do They Work?
- FHA vs. Conventional Loans: Which is Right for You?
- VA Loan Benefits and Requirements
Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
Our advice 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.
