Stated Income Loans

Stated Income/Bank Statement loans for self-employed borrowers

Self-employed borrowers may find it difficult to qualify for traditional mortgages due to their variable income and tougher documentation requirements from lenders. With alternative documentation loans — sometimes called bank statement loans, or NON-QM loans (Non-Qualified Mortgages) — lenders use different methods to determine qualification but are still meet the new ability-to-pay standards as stipulated in the Mortgage Reform/Dodd-Frank act.

Who Is a Bank Statement Loan Good For?

You may want to use a bank statement loan if you don’t have a steady cash flow. They are also good if you can’t get proof of income from an employer. People who might use a bank statement loan could be:

Consultants
Freelancers
Small business owners
Doctors
Lawyers
Real estate investors and agents

In these professions, you might not be able to get a normal or FHA loan, because the income on your tax returns is often adjusted for deductions and business write-offs. It might not reflect the true amount of income you’re earning.

Your bank statements, however, show your full income. This can help you get a loan that you otherwise wouldn’t be able to.

If you already own a home, you can also use bank statement loans to refinance your mortgage. If you’ve left the traditional workforce since buying your home but would still like to refinance, these loans may be an option for you.

Pros of Bank Statement Loans

No tax returns, W-2s, or pay stubs needed
A higher debt-to-income ratio may be okay
Often have high loan limits
Often can be used on primary residences, second homes, and investment purchases

Cons of Bank Statement Loans

May have higher interest rates, up to about 1% higher
May need a larger down payment
Not offered by all lenders

What Are Other Options?

Keep in mind that if you work for yourself, you may still be able to get a traditional home loan. This could include a conventional or FHA mortgage.

Most lenders verify income by looking at the average of the last two years of your tax returns. If you’ve been self-employed for a while (at least two years), and your income has stayed steady or grown during that time, you may still be able to get a conventional loan.⁴

A larger down payment and good credit can also help your chances of getting a mortgage as a self-employed person. It also helps to borrow with someone who has a high credit score.

For bank statement loans, lenders use bank statements (typically 2 years but sometimes 12 months’ worth) to confirm a borrower’s income rather than tax returns and recent pay stubs like traditional borrowers. Basically, in simplified terms your income is determined by your CASH FLOW/BANK DEPOSITS etc. Each lender has its own underwriting requirements to determine net income (income minus business expenses and taxes), so if you don’t qualify with one lender, then there may be another that you will. We have contacts at multiple NON-QM / Bank statement type lenders. Not all lenders offer non-QM loans, but we can analyze your unique situation and refer you to the correct lending source.

Qualifying for a bank statement loan

In addition to determining your net income, lenders also look at the following things when determining loan qualification:

Two-year timeframe. Most lenders require self-employed borrowers have at least two years of experience/self-employment with consistent income non declining income.
Debt-to-income-ratio. This ratio determines the maximum loan amount. Some lenders may go as high as 55% (traditional mortgages are usually between 36% to 45%), though the actual ratio is lender specific.
Down payment. These loans tend to require larger down payments than traditional mortgages. A borrower with great credit may still be required to put 10% down (conventional mortgages allow for 3% down), but some lenders may require more depending on the loan amount and overall credit profile.
Credit score. Expect a higher credit score requirement with bank statement loans (620+).

Because these loans are considered riskier, expect interest rates to be 1% or more higher than for traditional mortgages.