If you hear of a loan that only requires bank statements to verify income, you may assume that it requires a large down payment of 20-30%.
After all, the lender doesn’t ask for tax returns, a P&L, or pay stubs.
But some bank statement loan lenders require just a small down payment, as little as 10% Here’s how to find them.See if you qualify for a bank statement loan.
What’s in this article?
Bank statement loans don’t require tax returns, but otherwise, they use much of the same criteria as traditional loans.
You’ll want a strong file to be approved for a small down payment, including:
1. High credit score: Many bank statement loan lenders maintain a minimum credit score of 700-720+ to qualify for a small down payment.
2. Self-employed history: Most if not all bank statement loan lenders require you to be self employed at least 2 years. The longer the better.
3. Strong bank deposits: A 24-month history of regular bank deposits will help your case.
4. Hefty reserves: Many lenders require 3-6 months of your full future housing costs in reserves after paying the down payment and closing costs.
5. A great property: Few lenders like to issue bank statement loans for unique or non-conforming properties.
6. No NSFs: Too many non-sufficient funds notices – more than 5-10 per year – on the bank statements you use for approval can derail your approval.
7. Receive gift funds. Most lenders allow you to receive gift funds for a down payment, but still require you to have 5-10% of your own money. But what if you have a gift for 20% down? Let any gift funds season 30-60 days (depending on bank statement loan lender). Then, the lender considers the funds yours, and you can count them toward your minimum investment. The lender won’t count it as business income, but it is allowed for your down payment.
If it sounds like you are a strong candidate, here’s where to look for a low down payment bank statement loan.Submit your loan scenario.
Griffin Funding – 10% down
Griffin Funding is a top lender for bank statement loans and non-QM loans of many kinds. It offers an aggressive program for high-credit borrowers: 10% down on a bank statement loan, but only if you have a 720 credit score. It offers fixed and adjustable rates, and flexible terms.
Angel Oak – 10% down
While Angel Oak allows credit scores down to 660 for its bank statement program, it likely requires a higher score for lower down payments. For applicants with a great score, 10% down is available. This lender also offers a 40-year term with interest only required during the first 10 years.Need help finding a lender? Start here.
NewFi – 10% down
This lender offers loans in 40 states. It allows home loans up to $3 million for primary residences, second homes, and investment properties. It even allows first-time buyers, which some lenders do not allow for these loan types.
Truss Financial – 10% down
This lender lends in just 7 states – Florida, California, Colorado, Ohio, Tennessee and the Carolinas – but if you’re looking to buy in these areas, this company is worth checking out. It offers 10% down for purchase and 90% LTV for refinances. It also offers 3, 12, and 24 months of bank statement to qualify, but expect to make a larger down payment for more aggressive features.
Typically, lenders do not require mortgage insurance for bank statement loans with less than 20% down.
This seems odd because, at least in theory, they are higher risk than a loan that requires tax returns.
But remember that mortgage insurance was invented for conventional loans. Its purpose is to satisfy a broad range of investors including 401k managers and pension fund directors. But non-QM loans like bank statement loans are created from the ground up by Individual banks and lenders. These lenders make their own rules for this product. They don’t sell the loan to downstream investors.
Though there’s usually no mortgage insurance, expect to pay higher rates if making a smaller down payment. At the end of the day, the lender builds risk into the mortgage rate.
Learn more about alternative lending solutions.
It may be impossible to find a zero-down or even 5% down bank statement loan. Even the best bank statement loans require at least 10% down.
Lenders are only willing to take so much risk for each borrower. Lenders know that the more you have invested, the less willing you will be to default on the loan.
While there are plenty of conventional and government-backed mortgages at 0-5% down, they are for owner-occupants only, heavily subsidized by the government, and protected by mortgage insurance.
For example, a lender wouldn’t offer a zero-down USDA loan without the government’s promise to repay 90% of the loan amount in case of default.
The closest you may come to a zero-down bank statement loan is by receiving gift funds for 10-20% down, then letting them season for 30-60 days in your account. At this point, the lender considers them your own funds.
Lenders typically require 3-12 months of house payments (known as cash reserves) after paying the down payment and closing costs. So you may not qualify, even though you technically have enough money for the down payment itself.
Be sure to have at least 10% down plus 3-6 months of principal, interest, taxes, insurance, and HOA dues in an account before applying.
Some lenders offer down payments as low as 10%. A higher credit score of around 700-720 is typically required to qualify for this reduced down payment level.
Usually, you need 12-24 months of bank statements. The best rates are available to those who can provide 24 months. A few lenders offer 3-month bank statement programs, and fewer still offer a 1-month program.
Most lenders use 50% of the average deposits over the last 12 or 24 months to qualify. This reduction accounts for business expenses. Despite the “expense ratio,” as lenders call it, your bank deposits still may be significantly more than your tax return income after write-offs.
Self-employed applicants have historically had a hard time qualifying for mortgages. It’s usually because they write off expenses (as they should).
Bank statement loans often allow them to qualify for more home, or qualify at all. Start your homebuying process and see how much you can qualify for.Check your eligibility for a low down payment bank statement loan.
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.