WHAT IS A BANK STATEMENT LOAN?

Non-QM Loan:  What is a Non-QM loan? It is a non-qualified mortgage for borrowers with that don’t meet the requirements of a typical qualified mortgage. This can involve an inconsistent income profile, major credit situations, or high debt.  Some of the features of non-QM loans can include: 

Alternative income documentation. Depending on the lender’s requirements, borrowers may demonstrate their ability to repay the loan using tax returns, bank statements, asset qualifiers or 1099s. 

No waiting period after bankruptcy. Some lenders offer non-QM loans that cater to borrowers with a history of bankruptcy or foreclosure, allowing them to get a mortgage as soon as one day after the event. Comparatively, qualified mortgages may require a waiting period of one to four years after bankruptcy, and two to seven years after a foreclosure. 

Higher debt limits. Qualified mortgages have a maximum DTI/debt-to-income ratio  (the percentage of your income that goes toward monthly debt payments) of 43%, while some non-QM loans allow for ratios over 50%. 

Higher down payment requirements. Non-QM loan borrowers may be required to put a minimum down payment of 15% to 20%.  

Higher interest rates. Non-QM loans typically have higher interest rates than qualified mortgages. So while it may be easier to meet the requirements of a qualified mortgage, non-QM loans are also a more expensive way to borrow.

No government backing. Because non-QM loans don’t have to follow CFPB standards (Consumer Financial Protection Bureau), they can’t be purchased by Fannie Mae or Freddie Mac and cannot be backed by the Dept of Veterans Affairs, US Dept. of Agriculture or the FHA/Federal Housing Administration. Therefore, the lender is taking on all the risk of issuing the loan.

WHAT ARE BANK STATEMENT LOANS?

Bank statement loans are one of many non-QM loans (non-qualified mortgages) which are the opposite of a qualified mortgage where tax returns, paystubs, and W2's are required to verify your income. Bank statement loans can be used to purchase a single-family home, condo, or townhome and can be used for second homes, vacation homes, or investment properties, or to refinance.  You need to show consistent work or business history (at least 2 years). However, seasonal workers can still qualify. It all depends on the criteria of the lender. If in business, you would need to produce a copy of your business license. Bank statement loans can be done for rate and term, meaning to lower your interest, or to take cash out in a refinance transaction.

Lenders must verify your ability to repay the loan, and bank statements are one way in which this is done.  Borrowers who do not have W2's, i.e., realtors, business owners, restaurant owners, and independent contractors and workers (must have valid business license) utilize bank statements for this non-QM (non qualified mortgage) loan.  

Not all lenders offer bank statement loans as they come with considerable risk to the lender and the borrower.  A bank statement loan is a non-QM, non-qualified mortgage which is not backed by Fannie Mae or Freddie Mac, and borrowers and lenders are less protected.  Search online or get referrals from friends or business associates for lenders who do these types of loans and have experience in doing them.

WHAT TYPES OF BORROWERS WOULD AVAIL THEMSELVES OF A BANK STATEMENT LOAN?

• Independent contractors
• Sole proprietors
• Realtors
• Entrepreneurs
• Business owners
• Freelance employees
• Consultants
• Contract workers
• Seasonal workers
• And others!

EXAMPLE OF A BORROWER WHO WOULD UTILIZE A BANK STATEMENT LOAN:

Your income for 2022 was $200,000 but you actually made $300,000 because you deducted equipment you purchased.  In such a case, your bank statements show what you actually made in 2022. 

WHAT LENDERS LOOK FOR;

Negative balances are a signal to lenders that you are having issues  managing your income.  Overdrafts are viewed negatively by lenders, so if you want to be approved, keep very few overdraft fees. Deposits should be consistent.  Large deposits will trigger questions by the lender; you will be asked to explain large deposits.