Are you a freelancer, self-employed, or make your money through non-traditional sources? Are you looking to buy a home? If ‘yes,’ then bank statement loans could be the solution to secure a home in today’s market.
However, to get the best financing option, you must also understand how today’s bank statement loan rates can impact your loan.
In this article, we will explore:
- How banks statement loans work
- The people who are best suited for these loans
- What you need to know about today’s bank statement loan rates
- The factors that can influence rates
- How to secure the best possible rate for your financial situation
How do bank statement loans work?
Bank statement loans can be an ideal solution for non-traditional incomes.
These loans allow borrowers to qualify using bank statements rather than traditional income verification methods like W-2s, pay stubs, or tax returns.
Lenders use the deposits shown in the borrower’s bank statements over a specified period, typically 12 to 24 months, to determine their income and financial stability.
This type of mortgage gives borrowers more flexibility when proving their income.
Who are bank statement loans for?
Bank statement loans are particularly beneficial for:
- Self-employed individuals
- Freelancers and gig economy workers
- Small business owners
- Real estate investors
- Individuals with irregular or seasonal income
Understanding bank statement loan rates today
Current rate trends
Verifying income for a mortgage in this unusual way means lenders usually charge higher interest rates for these types of loan products.
This is because lending to borrowers with non-traditional income sources carries an added risk.
As of today, interest rates for bank statement loans can range from 5% to 10%, depending on several different factors, such as:
- Credit score
- Loan-to-value (LTV) ratio
- Loan amount
- Down payment
- Property type
- Economic conditions
Let’s examine each one in greater detail to see how you might adjust these factors in your favor.
Credit score
Higher credit scores generally translate into lower interest rates.
Borrowers with higher credit scores are typically viewed as less risky, which can mean more favorable loan terms.
Loan-to-value (LTV) ratio
This is the ratio of your home loan compared to the value of your home.
To calculate the loan-to-value (LTV) ratio, divide your loan amount by your home’s appraised value, then multiply by 100 to get a percentage.
Regarding LTV ratios, a general rule of thumb is that the lower your LTV ratio, the better the interest rate.
Loan amount
Larger home loan amounts can carry higher interest rates, usually due to the increased risk for the lender.
Down payment
Larger down payments can effectively lower the interest rate. It can also reduce the loan amount, decreasing the lender’s risk.
Property type
The type of property you plan on buying can also impact the interest rate. For example, investment properties may have higher rates than primary residences.
Economic conditions
General economic conditions, such as inflation and Federal Reserve policies, can influence interest rates across all mortgage products, including bank statement loans.
How to secure the best bank statement loan rates
Improve your credit score
One of the most effective ways to secure a lower interest rate on a bank statement loan is to improve your credit score.
Start by reviewing your credit report and correcting any omissions or errors you notice.
Reducing debt and making timely payments are good steps toward a better credit score.
Additionally, avoiding new credit inquiries can boost your credit score over time.
Increase your down payment
Making a larger down payment reduces the lender’s risk and can effectively lower your interest rate. This, in turn, can lead to potential long-term savings for you.
Aim for at least a 20% down payment to secure more favorable loan terms. This can lead to smaller monthly payments and decreased overall interest costs over the life of the loan.
Lower your debt-to-income ratio
You can improve your debt-to-income (DTI) ratio by reducing your total debt.
This can positively impact your loan terms, potentially making you a more appealing candidate to lenders and increasing your chances of securing a loan with a favorable interest rate.
Shop around
When considering bank statement loans, it’s important to remember that different lenders may have varying interest rates and loan terms.
Compare offers from multiple lenders to ensure you get the best rate possible. Then, find the loan that best suits your financial situation and needs.
Lock in your rate
Once you’ve found an interest rate that works for your situation, consider locking it in to protect yourself from potential rate increases.
Most rate locks last 30 to 60 days, giving you time to complete the loan application and approval process without worrying about an unexpected jump in interest rates.
Pros and cons of bank statement loans
Pros
- Flexible qualification: Bank statement loans offer a more flexible qualification process, making them accessible to borrowers with non-traditional income sources.
- No tax returns required: These loans do not require tax returns, which can benefit self-employed individuals whose tax returns may not accurately reflect their income.
- Potentially faster approval: With less documentation, the approval process for bank statement loans is often quicker than traditional mortgages.
Cons
- Higher interest rates: Lenders often require higher interest rates on bank statement loans compared to traditional mortgages because of the added risk they carry.
- Larger down payments: Borrowers may need to provide a larger down payment to qualify for a bank statement loan, which can be a barrier for some individuals.
- Limited lender availability: Not all lenders offer bank statement loans, so borrowers may need to spend more time researching and finding a suitable lender.
Ready to secure your bank statement loan? Here’s how to start
Bank statement loans offer flexibility and accessibility, making them a great choice for many self-employed individuals, freelancers, and those with non-traditional income sources like you.
If you’re considering a bank statement loan, visit Lendistry Home Loans to start your application process today.
Our dedicated team of bank statement loan specialists is ready to guide you through each process step and help you find the best loan option tailored to your unique needs.