Bank Statement Loan

Last Updated: 03/24/2024

Loan Highlights

  • Bank Statement Loans are designed for borrowers who may not qualify for traditional mortgages due to irregular income or difficulty documenting income.
  • Suitable for self-employed individuals, freelancers, gig workers, and those with significant assets but limited verifiable income.
  • Ranges from $100,000 to several million dollars, depending on borrower qualifications and property value.

Interest Rate Estimate

Federal Fund Rate + 3.5% Margin (typically with 85% LTV Primary Residence) | Highly  fluctuating and not consistent between end funders.
*The mortgage interest rate calculation above is estimated. The subject borrower for that interest rate is as follow:
  • 740 FICO score
  • 30 years fixed interest rate
  • Primary residence
  • Single family house

Terms and Breakdown:

  • Interest rates: Fixed or can be ARM.
  • Loan terms: Typically 15 or 30 years amortized.
  • Capped at 85% LTV – Primary Residence
  • Capped at 80% LTV – Second Home.
  • Capped at 80% LTV – Investment (residential) 
  • Income verification based on bank statements rather than tax returns or pay stubs.
  • Higher interest rates or fees may apply due to increased risk for lenders.

Requirements:

  • FICO: 600+
  • DTI: 45/50
  • History: No BK or Foreclosure.
  • Typically requires 12 to 24 months of personal or business bank statements to verify income.
  • Stable deposit history and sufficient average monthly deposits to support loan payments.
  • Debt-to-income ratio may be more flexible compared to traditional mortgages.
  • Property appraisal to determine market value and loan-to-value ratio.
  • Documentation:
    • Typical Documents: Typically alternative documentation (alt-docs) including personal or business bank statements, profit and loss statements, and asset statements.
    • Full documentation (full docs) such as tax returns or pay stubs may also be required in some cases.

Derivative or Related Products:

  • Asset-Depletion Loans: Allow borrowers to use assets such as retirement accounts or investment portfolios to qualify for a mortgage without traditional income documentation.
  • Stated Income Loans: Similar to Bank Statement Loans, stated income loans allow borrowers to state their income without providing traditional income verification.

Funder and Sponsors:

  • Bank Statement Loans may be offered by banks, credit unions, or specialized lenders catering to self-employed individuals and those with non-traditional income sources.

Notes:

  • Common misunderstandings with Bank Statement Loans include:
    • Higher costs: Bank Statement Loans may come with higher interest rates or fees compared to traditional mortgages due to the increased risk for lenders.
    • Stricter underwriting: While Bank Statement Loans offer flexibility in income verification, lenders may still have strict requirements for credit score, debt-to-income ratio, and property appraisal.
    • Documentation requirements: Borrowers should be prepared to provide extensive documentation of bank statements, income sources, and financial history to meet lender requirements for Bank Statement Loans.