Bank Statement Loans: Everything You Need to Know About Bank Statement Loans: A Solution for Self-Employed Homebuyers

For self-employed individuals, business owners, freelancers, and independent contractors, traditional mortgage approval can be challenging due to inconsistent income or complex tax filings. Bank Statement Loans—also known as Alternative Income Verification Loans—offer a flexible pathway to homeownership by allowing borrowers to qualify using bank deposits instead of tax returns.

Here’s everything you need to know about Bank Statement Loans.

What is a Bank Statement Loan?

A Bank Statement Loan is a type of Non-Qualified Mortgage (Non-QM) designed specifically for individuals who cannot easily document consistent income using W-2s or tax returns. Instead, lenders evaluate the borrower's income based on 12 to 24 months of personal or business bank statements to determine average monthly deposits and cash flow.

This type of loan is especially popular among:

• Small business owners

• Self-employed professionals

• Freelancers and gig workers

• Real estate investors

• High net-worth individuals with complex financial profiles

• Individuals with seasonal income or multiple income streams

Key Benefits of Bank Statement Loans

• No Tax Returns Required: Income is verified through bank deposits, not tax filings.

• Flexible Income Calculation: Lenders consider gross deposits over several months to establish qualifying income.

• Higher Loan Limits: Available for jumbo and luxury home financing.

• Multiple Property Types: Can be used for primary homes, second homes, and investment properties.

• Tailored for Self-Employed Borrowers: Designed to serve entrepreneurs who often have significant tax deductions.

• Fast Processing Times: With simplified income verification, some lenders offer quicker approvals.

• Asset Utilization: Some lenders may allow additional assets to enhance income calculations.

• No Business Profitability Requirement: Even businesses showing minimal profit on paper can qualify based on cash flow.

How Do Bank Statement Loans Work?

1. Borrowers provide 12 to 24 months of bank statements (personal or business).

2. The lender calculates average monthly deposits.

3. Income is derived based on deposits, with adjustments for business expenses where applicable.

4. Loan approval is based on this calculated income, credit score, and down payment.

   
   

Example:

• Average Monthly Business Deposits: $15,000

• Expense Factor (e.g., 50%): $7,500

• Qualifying Income: $7,500 per month

Note: Some lenders use an expense ratio or apply an accountant's letter to establish the true income.

Bank Statement Loan Requirements

• Credit Score: Typically 660+ (some lenders allow lower with larger down payments).

• Down Payment: 10%-30% depending on credit and property type.

• Bank Statements: 12 or 24 months showing consistent deposits.

• Debt-to-Income Ratio: Generally up to 45%-50%.

• Cash Reserves: Often required—3-12 months of mortgage payments depending on loan size.

• Self-Employment: Must be self-employed or own at least 25% of a business for 2 years or more.

• Proof of Business Existence: Business license, CPA letter, or corporate registration may be requested.

• Credit Events: Some lenders may allow recent credit events like bankruptcies, foreclosures, or short sales, depending on the overall strength of the application.

Property Types Eligible for Bank Statement Loans

• Single-family homes

• Condos and townhomes

• Multi-family properties (2-4 units)

• Second homes and vacation properties

• Investment properties

• Non-warrantable condos (in some cases)

Who is a Bank Statement Loan Best For?

• Self-employed entrepreneurs

• Freelancers, consultants, and independent contractors

• Real estate investors

• Retirees with substantial liquid assets

• High-income individuals with complex financials

• Foreign nationals and non-resident buyers (some lenders)

• Individuals with fluctuating or seasonal income

• Professionals with large commissions or irregular payouts (sales agents, performers, creatives)

Bank Statement Loan Considerations

• Higher Interest Rates: Typically higher than conventional loans.

• Larger Down Payment: Most lenders require at least 10%-20% down.

• Prepayment Penalties: May apply on investment properties.

• No Standardization: Guidelines vary widely by lender.

• No Mortgage Insurance in Most Cases: Many programs do not require PMI, even with lower down payments.

• Limited Government Oversight: Since these are Non-QM loans, they don't fall under strict federal guidelines.

• Long-Term Planning: Important to have a plan for refinancing if you expect to qualify for traditional financing later.

• Higher Closing Costs: Some lenders may have slightly higher fees due to manual underwriting.

Steps to Getting a Bank Statement Loan

1. Gather Bank Statements: Prepare 12-24 months of personal or business statements.

2. Evaluate Credit and Assets: Ensure minimum credit score and sufficient reserves.

3. Choose an Experienced Lender: Work with a lender familiar with self-employed borrower programs.

4. Get Pre-Qualified: Understand your budget and buying power.

5. Select Property & Close: Complete the mortgage process with flexible underwriting.

6. Plan for the Future: Consider long-term financial goals, including potential future refinancing options.

   
   

Quick Bank Statement Loan Snapshot:

Final Thoughts

Bank Statement Loans provide an essential solution for self-employed individuals, business owners, and others with non-traditional income sources who may struggle to qualify for conventional mortgages. By using bank deposits as proof of income, these loans offer flexibility, accessibility, and the opportunity to achieve homeownership without compromising financial realities.

Whether you’re looking to purchase your dream home, invest in rental property, or refinance for better terms, a Bank Statement Loan could be the perfect match for your unique financial situation.

If you’re self-employed or have unique income streams and want to explore how a Bank Statement Loan can help you purchase or refinance property in Atlanta or anywhere nationwide, I would be honored to guide you through the process.

Contact Kereen Henry Luxury Associate Broker | Keller Williams 404-210-1674 | www.kereenhenry.com