Insider Look into Bank Statement Loans | Valor Lending Group
Take a second and check out our insider look into bank statement loans.
Bank Statement Loan programs allow self-employed individuals to receive a home loan without using tax returns, W2’s and pay stubs. They use the total deposits in your bank account and that is used to calculate the income over a 12 to 24 month period, with your bank statements they determine if you meet the criteria.
Self-employed borrowers tend to write off a large amount of their income as expenses on their tax returns. This can be done for a few reasons.
Firstly, they actually have all of that income put towards expenses.
Secondly, They reinvest the income back into the business for improvements
Finally, the borrower is just doing all he can to not have to pay taxes on the income that was really made.
In the end, no one wants to pay a truck load of money in taxes so they do their best to legally write off as much income as they can for tax purposes. That said, the savvy tax payer who is able to write off the majority of income to pay as little as possible in taxes shouldn’t be restricted in qualifying for a mortgage loan.
That is where the bank statement loan option comes into play and gives the self-employed borrower an option to buy a home and not have to restrict their tax write offs.
This loan program is available for loans from $100,000 all the way up to Jumbo loans as high as $3,000,000 for purchase or refinance.
Valor Lending Group is here for all of your Bank Statement Loan needs.
Our team will work around the clock to get you the top loan scenario.
Our Team will educate you with the knowledge you will need to make the best decisions for you loan scenario.
What Are Bank Statement Loans?
These are not the type of loans that were prevalent in the pre-2008 financial crisis, and no longer are the days in which loan applicants can simply state their income on a loan application with virtually no due diligence conducted by the lender. After the 2008 financial crisis, the sweeping provisions of Dodd-Frank changed the industry substantially, at least in the owner-occupied residential context. Since 2010 Dodd-Frank has required lenders to document a residential borrower’s ability to repay the loan. Bank statement lenders still want to ensure borrowers can repay their mortgages; they just use bank statements to verify income as opposed to tax returns. Self-employed borrowers are able to document their ability to repay based on business deposits into their personal or business bank accounts, i.e., their true cash flow.
Why Use Bank Statement Loans?
1) The Difference
Traditional mortgage lenders require tax returns, W-2s, and paycheck stubs in order to determine monthly income. For salaried and hourly borrowers, the lenders look at gross income for qualifying purposes. But for self-employed borrowers, traditional mortgage lenders look at net income, the adjusted gross income showing on tax returns.
This puts self-employed borrowers at a disadvantage because the typical self-employed or 1099 employee will write off as much expense as possible from their gross income on their tax returns to minimize how much they owe once tax season comes around. Borrowers still must qualify based on the income deposited over a given period, typically verified on 12 or 24 months of bank statements.
The total deposits in the bank statement period are the gross income used. Once this number is established, the debt to income ratio or DTI is derived (based on the income against the new mortgage payment and current monthly minimum debt obligations i.e. credit card, car loan, student loans, etc.) to ensure the borrower can afford the addition of the mortgage loan payment. If all aspects of the borrower’s finances are within the program requirements and a DTI no higher than 55%, the lender will be able to underwrite and finance the loan. The same as traditional loans, these loans are repackaged and sold on the secondary market.
2) Qualifying
This is an incredible and expanding area of mortgages that levels the playing field for self-employed and 1099 employee borrowers, providing the opportunity to qualify without tax returns.
These types of loan programs can be used for both owner-occupied, and non-owner-occupied 1-4 unit properties, the same as traditional financing allows. The best bank statement loans, borrowers still must qualify based on the income deposited over a given period, typically verified on 12 or 24 months of bank statements.
The gross amount deposited in the given amount of time is then considered their “gross income”. Once this number is established, the debt to income ratio or DTI is derived (based on the income against the new mortgage payment and current monthly minimum debt obligations i.e. credit card, car loan, student loans, etc.) to ensure the borrower can afford the addition of the mortgage loan payment. If all aspects of the borrower’s financial is within the program requirements and a DTI no higher than 55%, the lender will be able to underwrite and finance the loan.
These loans are repackaged and sold on the secondary market just the same as traditional mortgage financing. This is an incredible and expanding area of mortgages that levels the playing field for self-employed and 1099 employee borrowers, providing the opportunity to qualify without tax returns. These types of loan programs can be used for both owner-occupied, and non-owner-occupied 1-4 unit properties alike the same as traditional financing allows.
Advantages And Disadvantages of Bank Statement Loans
1) Pros of Bank Statement Loans
- No tax returns required
- Allows self-employed individuals and 1099 contractors to qualify
- Qualify even if the business is showing a loss
- Comply with Dodd-Frank and receive all appropriate borrower protections
2) Cons of Bank Statement Loans
- Must be in business for at least 2 years, showing the steady flow of deposits
- Not available to salaried borrowers (although non-self-employed co-borrowers allowed)
- Rates are slightly higher than traditional mortgages (but not more)
- None of the government programs (such as FHA, VA, or USDA) apply
What Bank Statement Loans Are NOT
1) Bank Statement Loans Are NOT True Stated Income Loans
(a) Once again, bank statement loans require income verification.
The income verification is based on bank account deposits. In the residential, owner-occupied arena, Dodd-Frank has eliminated “true” stated income loans.
(b) Bank Statement Loans Are NOT “No Tax Return Investment Property Loans”
Borrowers that fall outside traditional underwriting guidelines but are looking for long-term loans with more attractive rates. The bank statement loan is a great option but is not a rental loan. These loans do not require tax returns but do require a debt-to-income ratio calculation which is based on the gross deposits. They provide more flexibility and no AGI (Adjusted Gross Income) finding for qualifying. Follow this link for more information on investment property loans.
The Bottom Line
Bank statement loans have become increasingly popular as a viable option for self-employed borrowers for home financing. They are ideal for those who make enough income to support a mortgage but can’t qualify with tax returns. Self-employment should not make it more difficult to secure a home loan. Whether you are a small business owner or an independent contractor the bank statement loans are great ways to homeownership. Speak to a mortgage professional at Valor Lending Group to discuss how you can qualify. Gregory Riggs Esq.
Bank Statement Program Highlights:
- 12 and 24 month Bank Statement options available (1 to 2 year 1099 only)
- Credit scores starting at 620
- Up to 90% LTV (on Purchases & R/T Refinances)
- Borrower and Lender paid points available
- Must have 2 years verifiable self employment income (must own at least 50% of the business)
- No Tax Returns
- Loans up to $7.5MM
- Purchase and cash-out or rate-term refinance
- 4 years seasoning for foreclosure, short sale, bankruptcy or deed-in-lieu
- Owner-occupied, 2nd homes and non-owner occupied
What you would need for submission:
- 12-24 Months Bank Statements (business or personal)
- Copy of Business License (3 years)
- CPA Letter (stating you are 100% owner, you have been in business for 2 years and they have done your taxes for two years | Also list your current expense ratio and the CPA License Number)
- Purchase Contract (for purchase)
- Current Mortgage Statement (for refinance)
- Hazard Insurance Dec Page or New Quote for purchase
- Driver License (front and back)
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Recap of our Loan Products:
- Hard Money Loans (20% down / minimal documentation) Typically Fund in 7-10 days.
- Stated Income Loans (Great for business owners and self employed ) No tax returns!
- 100% financing is available (we can cross collateralize other properties if there is enough equity)
- Valor VA Home Loan 100% financing up to $1.5MM
- Investor Cash Flow Loan – No tax returns or DTI calculation! Based on subject property cash flow
- Flipper & Rehab Loans (Flip a property with one of our many options)
- 2nd Position Loans up to $5mm
- Raw Land & Lot Loans
- Ground up Construction for spec homes, custom homes and commercial ground up.
- Farms, Vineyards, Ranches and Agricultural Properties (25-30% down)
- 5% down Jumbo’s with NO MI up to $2mm / 10% down up to $3mm
- Manufactured Housing / Mobile Homes (20% down / 600+ credit score)
- Acreage Properties
- Commercial Loans up to $500mm
- 3% & 5% down Conventional Loans– LPMI (Lender paid mortgage insurance)
- Foreign Nationals Loans (no social security or residency required)
We also offer:
- 10, 15, 20, 25, 30 year Fixed, Conventional Conforming Loans (under $510,400)
- High Balance Conforming aka Super Conforming (from $510,400-$765,600)
- Jumbo’s to $10 Million / Super low rates! / 10% down Jumbo to $3mm
- FHA, USDA
- ARM’s
- Reverse mortgages up to $1 Million Value
- Refinance including Cash Out
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