For many borrowers, bank statement loans are an attractive option—especially if they have non-traditional income sources.
Bank statement loans provide flexibility for self-employed individuals, freelancers, and business owners looking for homebuying solutions.
In this article, we’ll cover everything you need to know about bank statement loans, from their benefits and drawbacks to the application process and eligibility requirements.
Apply for a bank statement loan with Lendistry Home Loans.
What are bank statement loans?
A bank statement loan is a different type of mortgage. Borrowers qualify based on their bank statements instead of using traditional income verification methods like W-2s, pay stubs, or tax returns.
Lenders use these bank statements to assess the borrower’s income and financial stability.
Who can benefit from bank statement loans?
Bank statement loans are particularly beneficial for:
- Self-employed individuals
- Freelancers and gig economy workers
- Small business owners
- Entrepreneurs and solopreneurs
- Real estate investors
- Those with irregular or seasonal income
Benefits of bank statement loans
- Easier documentation process: Lenders focus on bank statements rather than extensive documentation like tax returns and pay stubs. This can benefit self-employed individuals and business owners without standard ways of recording income.
- Flexibility for non-traditional income: Bank statement loans allow borrowers to demonstrate their ability to repay the loan amount based on their actual income deposits, providing flexibility for those with non-traditional income sources.
- Faster approval and funding: Bank statement loans often have a quicker approval and funding process compared to traditional mortgages. Less paperwork and fewer steps involved means approval and funding are possible in a shorter timeframe.
- No need for tax returns: Bank statement loans bypass the need for tax returns, allowing borrowers to qualify based on their gross income. Many self-employed individuals and business owners have tax returns that don’t accurately reflect their true income due to business expenses and deductions.
How bank statement loans compare to traditional loans
Traditional loans typically require extensive documentation, including W-2s, pay stubs, and tax returns, which can be challenging for those with non-traditional income sources.
In contrast, bank statement loan lenders realize many borrowers don’t fit into that type of ‘inside-the-box’ moneymaking method.
These loans were created to allow borrowers to qualify based on their actual income deposits rather than standard financial records.
However, traditional loans might be more suitable for borrowers with a steady income and a strong financial history, as they generally offer lower interest rates and more favorable terms.
Impact of market conditions on bank statement loans
Market conditions can significantly influence the appeal and availability of bank statement loans.
Lenders might adjust their terms during periods of economic uncertainty or fluctuating interest rates, making these loans more or less accessible.
For example, in a rising interest rate environment, the higher rates typically associated with bank statement loans could become even more pronounced, potentially affecting the overall cost of borrowing.
In contrast, in a more stable market, borrowers might find it easier to secure favorable terms, making bank statement loans a more viable option for those with non-traditional income.
Drawbacks of bank statement loans
- Higher interest rates: Because lenders see these loans as riskier, they can often carry a higher interest rate than traditional mortgages.
- Larger down payment requirements: Bank statement loans often require 10% or more. This higher upfront cost can be a barrier for some borrowers.
- Limited lender availability: Not all lenders offer bank statement loans, which can limit your options. To ensure you’re getting the best terms and rates available, it’s worth taking some time to research and locate lenders who specialize in these specific types of loans.
- Stricter qualification criteria: While the documentation requirements are simpler, lenders may still have stricter qualification criteria for bank statement loans than conventional loans. This can include higher credit score requirements, lower debt-to-income ratios, and more stringent evaluations of your bank statements to ensure consistent and sufficient income.
How to apply for a bank statement loan
1. Gather your bank statements
The first step in applying for a bank statement loan is to gather your bank statements for the past 12-24 months. These statements should clearly show your income deposits and other relevant financial information.
2. Research lenders
Since not all lenders offer bank statement loans, it’s important to research and identify those who do. Compare their terms, rates, and requirements to find the best fit for your financial situation.
3. Prepare additional documentation
While the primary focus is on your bank statements, you may still need to provide additional documentation, such as:
- Proof of business ownership
- Identification
- A completed loan application
4. Submit your application
Once you have gathered all necessary documentation and selected a lender, submit your application. The lender will carefully review your bank statements and other information to determine your eligibility and loan amount.
5. Await approval
Once you receive your approval, carefully review the loan terms and conditions provided by the lender. This will help you fully understand your loan’s interest rates, repayment schedule, and other key details.
6. Close the loan
If you agree to the terms, you will move on to closing the loan. This process involves signing the necessary paperwork and fulfilling any final requirements set by the lender.
Is a bank statement loan right for you?
Bank statement loans are a flexible financing option for self-employed individuals, freelancers, and others with non-traditional income sources.
While they come with higher interest rates and larger down payment requirements, the benefits of easier qualification and faster approval can make them an attractive choice over conventional mortgages.
If you’re considering a home loan and need help figuring out where to start, begin your journey with Lendistry Home Loans.
Start your bank statement loan application today.
Our dedicated home loan experts are here to guide you through the bank statement loan process, helping you take the first step toward making your dream home a reality.