Qualifying for a Bank Statement Mortgage

What is a Bank Statement Loan?

Ever dreamed of homeownership but worried your income might not fit the mold? Traditional mortgages favor salaried employees with W-2s. But what about freelancers, self-employed individuals, or those with commission-based earnings? This is where non-QM loans come in.

Non-QM stands for “Non-Qualified Mortgage.” In simpler terms, these loans are designed for borrowers with non-traditional income structures who wouldn’t necessarily qualify for a conventional mortgage. Instead of relying solely on W-2s, non-QM lenders consider a broader range of income verification options:

• Bank Statements: Showcasing 12-24 months of deposits can demonstrate consistent income and your ability to manage a mortgage payment.
• Tax Returns: Self-employed individuals and freelancers can leverage past tax returns to prove income history and stability.
• Business Financials: For business owners, profit and loss statements and tax filings can be used to verify income potential.

Here’s the key difference: Non-QM lenders take a more holistic approach to your financial picture. They consider your income potential, not just a single tax year or pay stub. This can be especially beneficial if you have a history of on-time rent payments, a healthy savings account, or valuable assets.

So, is a non-QM loan right for you? If your income falls outside the traditional mold, but you have a strong financial track record, exploring non-QM options could be the key to unlocking your homeownership dream. The next step? Reach out to a qualified non-QM mortgage professional. They can assess your unique situation, explain the different loan options available, and guide you through the path to homeownership.

How Do Bank Statement Mortgages Work?

For self-employed individuals and freelancers with income that fluctuates, traditional W-2-based mortgages can feel out of reach. This is where bank statement loans step in. These non-QM loans rely on your personal or business bank statements, typically for the past 12-24 months, to analyze your income.

The lender will look for consistent deposits that demonstrate your ability to repay the loan. Instead of focusing on a single tax year, bank statement loans provide a broader picture of your earning potential. This can be particularly beneficial if your income has grown over time or if you have seasonal variations.

It’s important to note that while bank statement loans offer more flexibility, they may come with slightly higher interest rates compared to traditional loans. However, for those with non-traditional income structures, they can be a valuable tool to achieve homeownership.

To understand the full breadth of documents lenders will review for a bank statement loan, you can read our guide: 6 Documents Lenders Review When Qualifying You For a Bank Statement Mortgage.

What Lenders Look For When Reviewing Your Bank Statement Application

Unlike traditional mortgages with their rigid requirements, non-QM loans take a more comprehensive look at your financial picture. Here’s what non-QM lenders typically consider when qualifying you for a loan:

Income

This is naturally a crucial factor. However, non-QM lenders go beyond the traditional W-2s. They may consider:

• Bank Statements: Personal or business bank statements (typically 12-24 months) showcasing consistent deposits demonstrate your earning potential.
• Tax Returns: Self-employed individuals and freelancers can leverage past tax returns to prove income history and growth.
• Business Financials: Profit and loss statements and tax filings for business owners paint a clear picture of income potential.

Income Frequency

Non-QM lenders understand that income for freelancers, commission earners, or business owners might fluctuate. They’ll analyze your income over a longer period to assess overall stability, not just a single snapshot.

Credit History

A good credit score is always a plus, but non-QM lenders may be more flexible with past credit issues. They’ll prioritize your overall financial health and responsible credit behavior moving forward.

Debt-to-Income Ratio (DTI)

This ratio compares your monthly debt payments (rent, car loans, etc.) to your gross income. A lower DTI indicates a stronger ability to manage another loan payment.

Assets

Some non-QM loan programs consider your assets like stocks, bonds, or even another property alongside your income. This additional layer of security can strengthen your application.

Down Payment Amount

While a larger down payment is always beneficial, non-QM loan options might allow for a lower down payment compared to traditional mortgages. However, this may come with a higher interest rate.

Cash Reserves

Having a healthy savings account demonstrates financial responsibility and your ability to handle unexpected expenses.

Overall Financial Picture

Non-QM lenders take a more holistic approach. They consider your entire financial landscape, including your ability to save, manage debt, and make on-time payments, even if your income structure is non-traditional.

Remember, this isn’t an exhaustive list, and specific requirements may vary depending on the lender and loan program. The key takeaway is that non-QM loans offer a more flexible approach to qualifying for a mortgage. They cater to borrowers with diverse financial situations, opening doors to homeownership that might seem closed with traditional loan options.

Income Types Accepted by Bank Statement Loans

Traditional mortgages rely heavily on W-2 income verification, leaving many borrowers with non-traditional income streams feeling shut out. Thankfully, bank statement loans, a type of non-QM loan, open doors for a wider range of income earners. Here’s a breakdown of income types typically accepted by bank statement loans:

Traditional Loans: Typically require a higher down payment, often in the range of 20% or more of the property value. This larger down payment demonstrates to the lender your commitment to the loan and reduces the overall amount you need to borrow.

Traditional Loans: Generally require a strong credit score (often above 740) to qualify for the most favorable interest rates and loan terms. A lower credit score might still allow you to qualify, but it could result in a higher interest rate.

Traditional Loans: Typically offer a wider range of fixed and adjustable-rate mortgage (ARM) options with potentially lower interest rates, especially for borrowers with strong credit scores and larger down payments.

Traditional Loans: May have stricter guidelines regarding the type of property you can finance. For example, some lenders might not finance fixer-uppers or investment properties.