A bank statement loan is a type of mortgage designed for borrowers who may not qualify for traditional loans due to non-traditional income verification methods.
Key Features: Income Verification: Instead of relying on tax returns, W-2s, and pay stubs, lenders use bank statements (personal or business) to assess the borrower's income and cash flow. Target Borrowers: Primarily aimed at self-employed individuals, freelancers, gig workers, small business owners, and others with irregular or non-standard income streams. Non-Qualified Mortgage (Non-QM): Bank statement loans are considered non-QM loans, meaning they don't meet the conforming standards of Fannie Mae and Freddie Mac. Higher Interest Rates: Due to the increased risk for lenders, bank statement loans typically come with higher interest rates than traditional mortgages. Larger Down Payment: Expect to make a larger down payment (often 10% or more) compared to conventional loans.
Who Might Benefit: Self-employed individuals: Whose tax returns may not accurately reflect their income due to deductions and write-offs. Freelancers and gig workers: With fluctuating or inconsistent income. Small business owners: Who may not pay themselves a regular salary or have substantial tax deductions. Real estate investors: Who may have rental income that can be verified through bank statements.
Pros: Flexibility: Offers an alternative for those who cannot easily verify income through traditional means. Accessibility: Opens up homeownership opportunities for individuals with non-traditional income.
Cons: Higher Costs: Higher interest rates and potentially larger down payments. Not all lenders offer bank statement loans.