Are you a self-employed entrepreneur, small business owner, or freelancer looking to purchase a home? Do you take advantage of write offs for your business? A Bank Statement Only Loan could be a great solution.
We know you want to make the best decision when it comes to your home purchase (and you want to save the most money too...). This guide will help you understand what to expect before your mortgage, what you'll need during the process, and what to expect after your loan is complete.
Self-employed borrowers are required to prove their income by what they pay in taxes, not what they made. This has prevented many low risk borrowers like freelancers, contractors, and other professionals from being able to purchase a home. The reality is, self-employed borrowers must write off business expenses in order for their business or company to be profitable. This strategy of course does not represent the true income the business has made but shows a reduced amount for tax purposes. Who would have thought that being tax efficient would prevent you for purchasing a home? Luckily the Bank Statement Only Program changes all that.
What is the Bank Statement Only Program?
The program helps self-employed borrowers with write offs qualify for a home loan. Borrowers who claim their expenses for their business and reduce their adjusted gross income (AGI). It was designed to help responsible self-employed borrowers purchase a home using only bank statements instead of the traditional personal & business tax returns along with other extensive paperwork.
What are the Advantages of a Bank Statement Only Loan?
No tax returns
No tax transcripts
No mortgage insurance
No seasoning for Bankruptcy or Foreclosure
Bank Statements Only
Debt to income to 50%
Loans up to $1M
Types of Properties Allowed:
Single-family homes (SFR)
Planned Unit Developments (PUDs), think Townhomes
Condos (Non-Warrantable OK)
Multi-unit (duplex, triplex, quadruplex)
Second homes and investment properties
What About the Mortgage Rate?
As with all mortgages, the rate you end up qualifying for will depend on your compensating factors like credit score, down payment, assets (reserves), income, and loan type (Fixed or ARM). These loans are bit more expensive and carry a rate on average 0.5% – 1.0% higher than traditional conventional mortgages.
Bank Statement Only Program Requirements
Income - this will be based off 12 months personal or business bank statements. Your average deposits will be used for qualifying income with a max debt to income of 50%
Financial History - Solid history is a must along with being self-employed for a least two years proven with a business license or articles of incorporation.
Credit Score - Your credit score (FICO) should be 700 or above. The higher your credit score the better deal you will ultimately get.
Down Payment - That maximum financed allowed is 90% LTV (Loan to Value). So, expect to put down at least 10% with a 740-credit score. If you have a lower credit score you will put down 15% or more. Gift funds are allowed for down payment and closing costs.
Cash reserves – It’s a good idea to have at least six months worth of mortgage payments as reserves in a liquid account like checking, savings, or retirement.
Loan Amounts - Loan limits for these types of loans are typically $1M but you can qualify for more depending on your approval. The minimum is $200K
P & L Statement – You will likely need to provide a profit and loss statement for your business. The good news is you can provide it yourself. A CPA is not required to complete this document.
Bank Statement Only Loan Ready Checklist
When you set your phone meeting with your bank statement only mortgage advisor, be prepared. Here are the documents you want handy when you have your consultation.
Most recent 12 months bank statements personal or business (all pages)
Once you’ve completed the application and provided your bank statements your mortgage advisor will complete your approval and go over all the details with you including rates, terms and down payment requirements. At this point you will receive a pre-approval letter so you can start shopping for your new home. This is a critical step since it will let sellers know you are serious and are approved to purchase their home. Your realtor will use the pre-approval to help negotiate and get you the best deal on your home.
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