Important Things You Need to Know About Bank Statement Home Loans
If you're a self-employed individual looking to purchase a home, you may have heard of bank statement home loans. Bank statement home loans are one of the most popular loan types for self-employed individuals who don't have enough traditional income to qualify for a conventional mortgage.
But what exactly is a bank statement home loan, and how do they work? Read on to learn more.
How Bank Statement Home Loans Work
Bank statement home loans are based on the amount of money that flows into your business every month. Instead of relying on traditional W2s or tax returns, lenders will look at your monthly bank statements to determine your income and ability to make payments.
This can be especially beneficial for self-employed borrowers who don't always receive consistent paychecks or whose income varies from month to month. Plus, some lenders don't require years of tax returns, which makes bank statement home loans an attractive option for new business owners.
The Application Process
To apply for a bank statement loan, you'll need to provide your lender with several months' worth of personal or business bank statements. The lender will then review those statements and calculate an average monthly income figure that they can use as the basis for your loan application.
As long as this figure meets the lender's criteria, you should be eligible for a loan up to a certain amount, depending on the lender and other factors like credit score and debt-to-income ratio.
The debt-to-income ratio is a calculation used by lenders to determine how much of your income is going towards debt payments. This is a huge determinant of how much money you can borrow after settling your monthly debts.
The Main Perks of Bank Statement Home Loans
One of the biggest advantages of bank statement home loans is that they offer more flexibility than traditional mortgages. For example, if you own multiple businesses or properties and have varying sources of income each month, this type of loan could be just what you need to get approved for financing.
Additionally, many lenders offer reduced documentation requirements with these loans, meaning that it's often easier and faster to get approved than with a conventional mortgage — especially if you can provide additional supporting documents such as tax returns or profit and loss statements.
Bank statement home loans can also be an excellent option for individuals with bad credit, as lenders may be more willing to take on more of a risk with this type of loan — as long as you can provide proof of your monthly income. But in most cases, they might require a longer loan term or a higher down payment to offset their risk.
