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Bank Statement Loan

What is a Bank Statement loan?

A Bank Statement loan is a type of Non-QM loan that uses the borrower’s bank statements to verify their income for loan approval. Designed for people who are self-employed, small business owners, and other applicants with non-traditional income sources, a Bank Statement loan offers borrowers an alternative to common income verification documents like W-2s.

Bank Statement loans may also be a useful option for freelancers, entrepreneurs, gig workers, and real estate investors.

 

Bank Statement Loan Requirements

The main qualifications for a Bank Statement loan include a minimum credit score of 620, 12 to 24 months of bank statements, and a down payment of 20%-30% depending on various factors. Requirements for Bank Statement loans change based on the property type and combinations of factors like your loan-to-value (LTV) ratio, credit score, and down payment amount. However, some general requirements for Bank Statement loans include:

  • Bank Statements: 12-24 months of personal and business bank statements to show consistent cash flow and income. Banks Statement loans are a type of Non-QM loan. This means that they use an alternative type of income verification. Your lender will review your bank statements, instead of your W-2 or 1099s etc. to verify how much money you have and your overall financial health.
  • Credit Score: While the focus of Bank Statement loans is on income verification, lenders still look for a higher credit score than many home loans. A minimum credit score of 620 is usually required and the requirement can be higher depending on other factors.
  • Down Payment: The down payment for a Bank Statement loan is generally between 20%-30% of the property’s value. The exact amount will depend on the property type and other factors like your exact credit score, loan amount, etc.
  • Loan-to-Value (LTV) Ratio: The LTV for Bank Statement loans is generally capped at 75%-80%. An LTV is the loan amount divided by the property’s appraised value.
  • Property Type: Bank Statement Loans are generally available for primary residences, second homes, investment properties, short-term rental properties, and multi-unit properties.
  • Debt-to-Income (DTI) Ratio: A DTI ratio of 43% or lower is generally required for Bank Statement loans. However, lenders may consider a higher DTI under certain circumstances. Your DTI is the percentage of your monthly income that goes towards your debt.
  • Business Documentation: If you are a business owner, you may need to provide relevant business information including, your business license, tax documents, and other information to support your income claims and show your business operations.

Bank Statement Loan Rates

Bank Statement loan rates vary based on the changing market, your credit score, the length of your loan term, and other factors. They are generally higher than the rates for Conventional loans by typically 0.5-2%. Other factors that affect Bank Statement loan rates include:

  • Down payment: A higher down payment mitigates risk to the lender and may result in lower interest rates.
  • Credit score: The same way a higher down payment may result in a lower interest rate, a higher credit score also indicates more security for the lender and may qualify you for a lower interest rate.
  • Property type: Different properties in different markets are more or less likely to appreciate and may be in more or less demand. These differences can affect your interest rate.
  • Savings: Larger cash reserves indicate financial security to a lender and may result in a lower interest rate.

Bank statement loans offer flexible income requirements. This makes them a potentially valuable tool for self-employed individuals, gig workers, and investors. If you think a Bank Statement loan may be right for your needs, reach out to a New American Funding loan officer today.

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