A Simple Guide to Bank Statement Loans

For many people, securing a mortgage is as straightforward as showing their tax returns and pay stubs to prove their income. But for small business owners, freelancers, and other self-employed individuals, the process can be a bit more complicated. This is where Bank Statement Loans come into play, offering a unique opportunity for those who may not have traditional documentation to secure the financing they need to buy or refinance a home.

In this blog, we'll break down what Bank Statement Loans are, how they work, and why they're a game-changer for entrepreneurs and self-employed borrowers. We'll also dive into the requirements and qualifications to help you decide if this is the right loan product for you.

What is a Bank Statement Loan?

A Bank Statement Loan is a type of mortgage program that allows borrowers to qualify for a loan using their bank statements instead of tax returns. This loan option is specifically designed for individuals who have irregular income or who cannot rely on traditional documentation to prove their earnings. Typically, this includes small business owners, independent contractors, and freelancers, all of whom may have difficulty getting approved for a standard mortgage.

Unlike conventional loans that rely on tax returns and W-2s, Bank Statement Loans allow lenders to assess a borrower's financial health by analyzing their bank deposits over a period of time - either 12 or 24 months - to determine their average income. This makes it easier for self-employed individuals to qualify, even if they don't have the same steady paycheck history that salaried employees do.

The Benefits of Bank Statement Loans

For those who run their own business or are self-employed, Bank Statement Loans offer several significant advantages over traditional loans:

1. No Need for Tax Returns
   One of the biggest barriers for small business owners and freelancers when applying for a mortgage is the requirement to provide tax returns. With a Bank Statement Loan, you don't need to submit tax documents to prove your income. Instead, the lender evaluates the deposits in your business or personal bank accounts, giving you more flexibility.
2. Income Flexibility
   Self-employed individuals often have fluctuating incomes, with some months showing higher earnings than others. A Bank Statement Loan allows you to present a more accurate reflection of your income by averaging deposits over time, which can help balance out months when earnings might be lower.
3. Higher Loan Amounts
   Traditional lenders often limit loan amounts for self-employed individuals due to perceived income instability. Bank Statement Loans, however, can help borrowers qualify for larger loans because the lender is considering your deposits over a longer period.
4. Tailored to Entrepreneurs
   Whether you own a business or work as a contractor, Bank Statement Loans are specifically tailored to meet the financial profiles of entrepreneurs. Instead of penalizing you for not having traditional income documentation, this loan type works to accommodate your unique financial situation.

How It Works

Now that you understand the basics of Bank Statement Loans, let's dive into how the process works at SentriPoint Lending Solutions.

1. Qualifying Criteria
   • Bank Statements: You'll need to provide either 12 or 24 months of bank statements, which will serve as proof of your income. The lender uses your monthly deposits to calculate your income.
   • No Tax Returns Needed: Unlike traditional loans, you won't need to submit tax returns to qualify.
   • Down Payment: Depending on your credit score and financial situation, you could qualify with as little as 10% down.
   • Credit Score: You may qualify for a Bank Statement Loan with a credit score as low as 680. However, the higher your credit score, the better the terms you're likely to receive.
   • Loan Terms: Bank Statement Loans are available in both 30-year fixed and adjustable-rate mortgage (ARM) terms, giving you flexibility in choosing the loan structure that best fits your needs.
   • Variable Interest Rates: Your actual interest rate and monthly payment will depend on current market conditions and your financial profile.
2. Required Documentation Here's what you'll need to get started with your Bank Statement Loan application:
   • 12-24 Months of Bank Statements: These will be used to verify your income.
   • Valid Identification: A driver's license or passport is required.
   • Social Security Card
   • Proof of Assets: This includes any savings or investments you may have, which can bolster your application.
   • Business Permit or License (if applicable): If you're a small business owner, you may also need to provide documentation such as a business license.

Who Should Consider a Bank Statement Loan?

While Bank Statement Loans are a fantastic option for many borrowers, they are particularly beneficial for:

• Small Business Owners: If you run a small business, your income may fluctuate month-to-month, making it difficult to meet the income documentation requirements of traditional loans. Bank Statement Loans solve this problem by using your deposits as proof of income.
• Freelancers and Gig Workers: Individuals in the gig economy who work on a contract basis often have irregular income, which can be difficult to document. Bank Statement Loans provide a more flexible option for these borrowers.
• Independent Contractors: Similar to freelancers, independent contractors typically don't have a regular paycheck or W-2 to show to lenders. Bank Statement Loans can help contractors qualify for a mortgage by looking at their overall deposits instead of relying on traditional income verification methods.
• Self-Employed Individuals: If you're self-employed and write off a significant portion of your income for tax purposes, your reported income may not reflect your true earning potential. Bank Statement Loans allow you to present a fuller picture of your financial health.

Bank Statement Loan Requirements

While these loans provide a great deal of flexibility, there are still some requirements you'll need to meet in order to qualify:

• Bank Statements: You'll need to submit 12 to 24 months of bank statements, showing regular deposits that can be used to calculate your average monthly income.
• Valid Identification: A driver's license or passport is required to verify your identity.
• Social Security Card
• Proof of Assets: If you have savings or investments, these can be used to strengthen your application.
• Business Permit or License: If you're a small business owner, you may be required to provide proof that your business is legitimate by submitting a copy of your business license or permit.

Conclusion

For small business owners, self-employed individuals, freelancers, and independent contractors, traditional mortgage loans often pose challenges due to the difficulty in documenting income. Bank Statement Loans, however, offer a flexible and practical solution by allowing borrowers to qualify based on their bank deposits instead of relying on tax returns.

At SentriPoint Lending Solutions, we understand that every financial situation is unique, especially for those with unconventional income streams. By offering Bank Statement Loans, we aim to help entrepreneurs and self-employed individuals achieve their homeownership goals without the red tape of traditional mortgage processes.

Ready to take the next step? Contact SentriPoint Lending Solutions today to learn more about how a Bank Statement Loan can work for you!