Updated: Oct 25
For self-employed borrowers, understanding bank statement mortgages and the process of getting a cash-out to refinance can be daunting. By providing flexibility to those who have an irregular income stream or operate as small business owners, personal & business bank statement loans are becoming increasingly popular with borrowers across the United States.
In this article, we will take an in-depth look at what is available when it comes to bank statement home loans and cash-out refinancing for self-employed individuals and offer tips on finding the best loan for your scenario. Whether you're looking to free up some extra funds or make a major purchase, keep reading to learn more about how these unique mortgage products work!
✅ Flexibility for Self-Employed Borrowers: Bank statement loans are particularly beneficial for self-employed individuals and small business owners. They offer a more flexible income verification process, relying on bank statements rather than traditional methods like W-2 forms or tax returns.
✅ Comparison with Traditional Loans: While traditional mortgage loans often require extensive documentation and have stricter credit requirements, bank statement loans may have more relaxed criteria but could come with slightly higher interest rates.
✅ Eligibility and Requirements: To qualify for a bank statement loan, borrowers generally need to show 12-24 months of bank statement income. The loan amounts and down payment requirements can vary, but they usually require a 10-20% down payment.
✅ Advantages for Diverse Property Types: These loans are not just for primary residences; they can also be used for investment properties, non-warrantable condos, and condo-tels, providing self-employed borrowers with a broader range of financing options.
✅ Understanding is Crucial: It's essential for self-employed borrowers to understand the nuances of bank statement loans, as they differ significantly from traditional mortgage products. This knowledge can help them make informed decisions and realize the dream of homeownership or investment properties.
Quick Navigation - Click the link below to jump to that section..
Traditional Mortgage Loans Vs Bank Statement loans
A comparison of traditional mortgage loans and bank statement loans reveals that the latter offers more flexible terms, including no requirement for tax returns or employment paperwork, but may come with slightly higher interest rates and shorter repayment periods.
Traditional Mortgage Loans:
Bank Statement Loans:
Bank Statements Programs are Perfect for Self-Employed borrowers
When you're self-employed, getting approved for a mortgage can be tough. But with bank statement cash-out refinances loans, borrowers can now use their alternative income sources to qualify for a loan instead of a mortgage process that relies on traditional income documentation and tax returns.
Bank statement mortgages are becoming increasingly popular among self-employed borrowers as they allow greater flexibility when it comes to loan qualification while taking into account the cyclical nature of many businesses and reducing paperwork requirements.
Bank statement loans work best for borrowers that do not qualify with a traditional home loan, such as; USDA Loans, Conventional loans, Non Qm loans. If you do not qualify for many of the traditional home loans just mentioned due to tax return requirements then you would be a perfect candidate for a bank statement loan. If you hear the word conventional loan when shopping for home loans. that would be considered a traditional loan for the purpose of this example.
It should be noted that non qm loans allow for Bank Statement loan programs. Non-qm lenders allow you to use traditional income verification methods such as personal and business bank statement loans.
Explanation Of Bank Statement Cash-out Refinance Loans
Bank statement cash-out refinance loans can include flexible loan terms, consider recent overdrafts or large deposits, and is ideal for entrepreneurs whose income fluctuates or who don’t want to submit multiple years of tax returns.
In evaluating a borrower’s ability to repay this type of loan the mortgage lender typically evaluates factors such as average monthly balance in accounts over twelve months or longer, applicable debts and liabilities being paid off with the financial reserves available, and other associated questions that show financial responsibility.
📞 Give Us A Call Today 1-305-407-0747
Importance Of Understanding This Type Of Loan For Self-employed Borrowers
The main advantage of these types of bank statement loan programs is the ability to use bank statements instead of tax returns to qualify. This makes qualifying for a bank statement loan program much easier than with traditional mortgages, where income verification from two years worth of tax returns is typically required.
Additionally, bank statement loans can offer more flexibility in terms as well as property type (such as investment properties, non-warrantable condos, and condo-tels). Self employed borrowers may find this particularly appealing since they now have access to more loan options beyond conventional and government products that rely almost exclusively on tax returns for qualification purposes.
By taking advantage of such lending opportunities, individuals who have otherwise been unable to get financing due to their non-traditional income scenarios can finally realize the dream of homeownership.
Bank statement cash-out loans can also help many who previously had difficulties refinancing due to existing mortgages being unqualified by traditional lenders because they cannot verify employment via taxation forms or other documents widely accepted under typical mortgage guidelines today.
What Is A Bank Statement Loan And How Does It Work?
A bank statement loan is a type of loan that allows self-employed borrowers to qualify based on their bank statements, rather than tax returns, income verification, and traditional employment documentation.
Bank statement loans are an option for business owners and 1099 independent contractors who can show 12- 24 months of bank statement income from personal or business deposits to verify their income.
The key feature of these loans is that lenders use the borrower’s non-traditional method of earning money (bank statements) to determine eligibility instead of solely relying on tax returns.
This creates opportunities for borrowers who may have difficulty qualifying through other methods due to not having enough W2s or because they lack consistent income streams over several years.
Definition Of Bank Statement Loan
Bank statement loans are a popular alternative to traditional mortgage loans for self-employed borrowers because they don't require providing tax returns or employment paperwork.
This type of loan is based on the borrower's financial activity in their personal and business bank accounts over several months, which lenders use to verify income. When applying for a bank statement loan, applicants will need to provide access to all personal and business bank accounts going back one year so that lenders can assess whether the borrower qualifies under this bank statement program only.
Additionally, borrowers may be asked to present account summaries for personal bank statement loans as well as personalized checks from recent months. Once approved, borrowers can access up to 80-85 percent of their total equity with a cash-out refinance bank statement loan by using personal and/or business funds deposited within the last two years via transaction reports or deposit slips.
Who Are Bank Statement Loans Popular With?
Bank Statement Loans are popular among self-employed professionals who have significant income but cannot document it via traditional methods like W2s or pay stubs. These types of loans can offer a great opportunity for cash-out refinance borrowers with these unique circumstances.
Explanation Of The Types Of Borrowers Who Benefit From This Type Of Loan
This type of loan offers the flexibility to use bank statements as proof of income for loan approval. Bank statement mortgages provide an ideal option for these types of borrowers because the lender can calculate their monthly incomes based on the average deposits in their personal and business accounts. The total assets in those accounts also determine how much they can borrow through this program.
How Do Bank Statement Loans Work?
The approval process for bank statement mortgages typically involves reviewing 12 months of personal or business bank statements to verify income and create the best loan program options.
Overview Of The Loan Application Process
Applying for a bank statement loan can be relatively straightforward if the right documentation is provided upfront. As these loans are non-qualified mortgages, they require income verification through 12 months of recent bank statements rather than traditional documents such as tax returns or pay stubs.
Borrowers must submit personal bank statements or business bank statements (consisting of 12-24 consecutive months) and evidence showing deposits from personal or business accounts over the last twelve months when applying for this type of loan program.
Documentation Required For Loan Approval
Bank statement loans provide self-employed borrowers with an easy and straightforward way to access financing. These types of loans rely on bank statements as the primary proof of income, rather than relying on traditional income verification methods such as pay stubs or tax returns.
In order to get approved for a bank statement loan, there are specific documents that lenders will require before they can approve the loan.
For self-employed borrowers, it’s important to understand exactly what documentation lenders need in order to feel comfortable making a decision about your application.
Generally speaking, most banks will ask for 12-24 full months' worth of personal and business account statements from an applicant's banks accounts that outline their recent financial activities—including deposits made for any current mortgage payments or other debts you may have.
It is essential for all applicants seeking out a bank statement mortgage loan to make sure that their repayment histories--and any additional details included within vital records--are accurate in order to ensure a low-risk assessment by the banking entity which processes the application.
In keeping with this process flows smoothly through the closing stage depends largely on submitting a complete set of documented materials during the intake cycle.
Eligibility Requirements For Bank Statement Loans
To qualify for a bank statement loan, self-employed borrowers must have sufficient banking history and payment histories to demonstrate their ability to repay the loan.
With the right documentation, lenders can make sound and responsible decisions about approving bank statement mortgage loans.
Key Eligibility Criteria
Self-employed borrowers who are looking to take out a home loan should consider bank statement loans as an alternative to traditional income documentation. Bank statement mortgages require the borrower to show 24 months of personal or business bank statements in order to prove the repayment capability.
The lender will evaluate the deposits into your accounts, stability of income, and any withdrawals made over that period of time in addition to your credit score. To be eligible for a bank statement loan, the borrower must have enough consistent cash flow from their self-employment activities, and some bank statement lenders, may even require that you receive 60% of all deposits from one source rather than multiple sources, meaning it's more advantageous for those with steady incomes.
Who Is Eligible For A Bank Statement Mortgage
Bank statement mortgages are designed to give self-employed borrowers the ability to qualify without having to provide a complete tax return or years of verifiable income documentation.
To apply for a bank statement mortgage, lenders typically require a minimum credit score and sufficient evidence that payments will be made on time. Different lenders may have other requirements, such as proof that funds came from lawful sources, like employment or business profits.
Generally speaking, most banks ask for at least twelve months of statements in order to verify cash flow and payment history before approving an application.
The flexibility offered by these loans make them attractive options for self-employed borrowers who would otherwise struggle with traditional mortgage loan programs due to difficulty documenting their income.
If you are self-employed and need more leeway with your verification documents — such as not needing two years’ worth of W2s — then utilizing this type of loan might be the best option for you.
How To Determine If This Type Of Loan Is Right For You
Bank statement mortgage loans can be a great choice for self-employed borrowers since they don’t require tax returns or employment paperwork. However, it is important to consider the full picture when selecting a bank statement home loan product that works for you and your current financial situation.
📞 Give Us A Call Today 1-305-407-0747
In conclusion, understanding how bank statement loans work and the associated benefits and drawbacks of personal and business bank statement loans can help self-employed borrowers make an informed decision regarding their next mortgage loan.
If you meet certain eligibility requirements, taking out a bank statement mortgage could be a great way to finance a cash-out refinance in order to achieve your financial goals.
Commonly Asked Questions
Can I get a bank statement cash out refinance loan?
Yes, you can get a bank statement cash out refinance loan. This type of loan is available for individuals who are self-employed or have fluctuating income and may not qualify for a traditional mortgage.
What is a bank statement refinance?
A bank statement refinance is a type of mortgage refinance that takes into consideration the borrower's bank statements instead of traditional income verification methods. It allows self-employed individuals or those with variable income to qualify for a loan.
How does a bank statement cash out refinance work?
In a bank statement cash out refinance, the borrower can refinance their existing mortgage and take out additional cash from the equity in their home. The lender will review the borrower's bank statements to determine their eligibility for the loan.
Who is eligible for a bank statement cash out refinance loan?
Individuals who are self-employed or have variable income are often eligible for a bank statement cash out refinance loan. These individuals may not have the traditional income documentation required for a conventional mortgage.
Can I use both business and personal bank statements for a bank statement refinance?
Yes, you can use both business and personal bank statements to qualify for a bank statement refinance. Lenders usually require a certain number of months' worth of statements to assess your income and ability to repay the loan.
How can I find a bank statement cash out refinance loan?
To find a bank statement cash out refinance loan, you can contact various lenders and mortgage brokers that offer this type of mortgage program. They can provide you with information on eligibility requirements and guide you through the application process.
What is the difference between a rate and term refinance and a bank statement cash out refinance?
A rate and term refinance is when a borrower refinances their mortgage to get a lower interest rate or change the loan terms. On the other hand, a bank statement cash out refinance allows the borrower to take out additional cash from the equity in their home.
What documents do I need to provide for a bank statement cash out refinance loan?
For a bank statement cash out refinance loan, you will need to provide your bank statements, usually for the past 12-24 months, to demonstrate your income stability and ability to repay the loan. Other documentation required may include proof of assets, credit history, and identification.
What is the process for a bank statement cash out refinance?
The process for a bank statement cash out refinance is similar to that of a traditional mortgage refinance. It involves submitting an application, providing the necessary documents, having your home appraised, and going through underwriting to secure approval for the loan.
Are bank statement loans popular?
Yes, bank statement loans are increasingly popular, especially among self-employed individuals or those with variable income. They provide an alternative solution for borrowers who may not meet the traditional income verification requirements.
What are bank statement mortgages?
Bank statement mortgages are home loans that allow self-employed individuals to use their personal or business bank statements as proof of income, rather than traditional income documents such as tax returns or pay stubs. These mortgages offer flexibility to those with irregular income streams or who operate as small business owners.
How do bank statement mortgages differ from traditional mortgages?
Unlike traditional mortgages, bank statement mortgages allow self-employed individuals to use their bank statements as proof of income. This means that borrowers with irregular income streams or who operate as small business owners may qualify for a mortgage even if they don't have traditional income documentation such as tax returns or pay stubs.
Can self-employed individuals with bad credit qualify for a bank statement mortgage?
While credit scores are an important factor in determining eligibility for a bank statement mortgage, borrowers with bad credit may still be able to qualify for this type of loan. Lenders will typically consider other factors, such as the borrower's income and assets, when determining eligibility.
How do lenders determine eligibility for a bank statement home loan?
Lenders typically look at a variety of factors when determining eligibility for a bank statement home loan, including the borrower's credit score, income, assets, and bank statements. Some lenders may also require a minimum number of months' worth of bank statements.
What documentation is required for a cash-out refinance with a bank statement mortgage?
To apply for a cash-out refinance with a bank statement mortgage, borrowers will typically need to provide their personal and/or business bank statements, as well as documentation of any other assets or income sources. Lenders may also require additional documentation, such as tax returns or profit and loss statements.
What are some important factors to consider when choosing a lender for a bank statement mortgage or cash-out refinance?
When choosing a lender for a bank statement mortgage or cash-out refinance, it's important to consider factors such as the lender's experience working with self-employed individuals, their interest rates and fees, and their overall reputation in the industry. Borrowers should also consider the lender's requirements for documentation and eligibility, as these can vary from lender to lender.
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
Discover helpful tips and tricks on mortgages by reading our blog posts
The Ultimate Guide To Hard Money Mortgage Lenders: What You Need To Know To learn more about hard money mortgages. Click here to read the full article
A Comprehensive Guide To Mortgages For The Self-Employed To learn more loan programs for self employed borrowers. Click here to read the full article
A Comprehensive Guide To Jumbo Loans In Miami Florida to learn more about jumbo loans and how to get the best rate. Click here to read the full article
Fannie Mae Homepath Program: Everything You Need to Know to learn more about how this program can help you purchase a Fannie Mae foreclosure property. Click here to read the full article
Home Possible® Mortgage Income Limits & Guidelines to learn more about how this program can help first-time homebuyers get into a property with 3 percent down. Click here to read the full article
A Deep Dive into Fannie Mae's Condo Project Review Process to learn more about how this program can help you purchase a condo. Click here to read the full article