How Bank Statement Loans Work

Are you a self-employed house hunter searching for real estate in the San Francisco Bay area? For those interested in the East Bay, Concord, Pleasant Hill, and Richmond are all housing markets to consider; after seven years of rising home prices in the general area, in 2019 year-over-year prices are leveling out or dropping according to a May 2019 report by CoreLogic. 

That same report says in May 2019, there were more than 8,000 new and existing homes sold in the Bay area including Alameda, Contra Costa, Marin, Napa, Santa Clara, San Francisco, San Mateo, Solano and Sonoma counties. The market is active, and prices are dropping, and some feel now is the time to commit to finding a new home.

But in spite of this, self-employed borrowers feel nervous about their ability to qualify for a mortgage loan. Those who are self-employed or have non-traditional income may wonder if they can qualify after hearing horror stories from others in similar situations trying to get approved for a typical mortgage.

But thanks to a type of mortgage lending known as a bank statement loan, also known as a stated income loan, owning a home is definitely possible even without a traditional income or a W-2.

How Bank Statement Loans Work

A borrower decides to purchase a home in Walnut Creek or Pleasant Hill. The borrower is self employed or meets one of the following categories:

• Business Owner
• Investor
• Freelancer
• Entrepreneur

There are other descriptions, but the bottom line is that if you work for yourself, you may qualify for a bank statement loan. Another type of scenario where a bank statement loan is useful; real estate investors who have debt-to-income ratios that are not accurate reflections of their true financial position. A bank statement review is one way to establish the true ability of such borrowers to afford a new home loan.

Applying For The Bank Statement Loan

You apply for a bank statement loan in much the same manner as any other type of real estate loan, except you won’t be required to provide your tax statements and W2. You will be required to credit-qualify for the loan, you may need to meet minimum cash reserve guidelines, and a down payment will be required. The amount of the down payment may be affected by credit scores, so ask your loan officer what is possible with your credit data.

The application process for these real estate loans is streamlined and simplified. Thanks to the reduced documentation requirements, you may find your loan proceeding faster than expected.

Bay Area Bank Statement Loan Requirements For Documentation

When applying for a bank statement loan, Bay Area borrowers are not required to provide tax documents or W2s. This is in contrast to other types of home loans which do require such documentation.

For bank statement and stated income mortgage loans, the borrower is instead required to furnish between 12 and 24 months of bank statements showing deposits and other transactions. 

There should be no gaps in these records; those who do have gaps may be required to supply bank statements for a longer period of time. The lender is only interested in work-related deposits, and 100% of those are counted toward to borrower’s qualifying debt-to-income ratios.

When talking to loan officers about this type of mortgage lending, you may find different standards apply depending on the financial institution, but in general when applying for stated income mortgage loans, the following guidelines may apply:

• Only deposit transactions may be permitted;
• Must have 12 or 24 consecutive months of bank statements ;
• Bank statements from multiple active accounts may not be allowed;
• If an old bank account for the borrower/business was closed and a new account created, documentation of both transactions may be required.

You may be required to furnish proof that you have established a small business; 1099s, business licenses, and/or articles of incorporation may be required as part of your mortgage application.

Depending on the nature of your mortgage loan transaction, the available property types may be subject to certain restrictions; in general you may be able to purchase a primary residence, investment property, or rental property with a stated income loan / bank statement mortgage.

If you are ready to learn more about your options for a bank statement loan, call (925) 478-8630 to get started.