A few lenders have developed a program called bank statement loans.
This new loan program requires business owners to provide 12-24 months bank statements to be used as proof of income. The lenders essentially use the average monthly deposits as qualifying income. Assets are still required to be fully documented.
- Borrowers must be self-employed for a minimum of two years
- You will be asked to provide one or more of the following…
- A business listing
- Your business website address
- A letter from your accountant verifying that you have been in business for at least two years.
- If you have a co-borrower who is a W2 wage earner, that person will need to fully document his or her income.
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Each lender may vary but bank statement loans will typically require anywhere from 10%-20% down. Compensating factors such as high credit scores and large average monthly bank statement deposits could result in a lower down payment for you. Gift funds from a relative may also be permitted.
Assets need to be fully verified. The more assets you have, the stronger your application will be making it easier to get an approval. Assets to be verified include bank statements, 401k and other retirement accounts, stocks or brokerage account statements, real estate owned and any other significant assets.
Here is an example of how the bank deposits will be used as income:
If you have deposits in both business and personal accounts, the averages can be combined. In the example above, the lender will use $4,166 + $8,333 to come up with a total of $12,499 monthly income.
- Small down payment as low as 10% required.
- No tax returns needed to verify income.
- Rates are reasonable considering only bank statements are being provided.
- Debt to Equity Ratio (DTI) requirements are higher than conventional loans. Sometimes as high as 50%.
- Most have no pre-payment penalties.
- Bank statement loans are only available to self-employed borrowers.
- You cannot use 100% of your business bank deposits.
- Rates are slightly higher than conventional but not much more.
- This program is not easy to find as traditional lenders do not offer them.