For self-employed individuals and small business owners, qualifying for traditional loans can be challenging, especially when it comes to providing standard income documentation. However, the 12-Month Bank Statement Loan offers a flexible alternative. By using bank deposit records instead of tax returns, this program provides a more accurate reflection of the financial reality for self-employed borrowers. Let’s take a closer look at how this loan works, its unique advantages, and who qualifies.
What is a 12-Month Bank Statement Loan?
In simple terms, a 12-Month Bank Statement Loan is designed for self-employed borrowers or business owners who may not have traditional income documentation, like W-2s or tax returns. Instead of relying on tax documents, lenders assess income based on the deposits reflected in the borrower’s bank statements over a 12-month period. This makes it ideal for those whose income may fluctuate or come from various sources.
Who is Eligible for a Bank Statement Loan?
Self-employed individuals
Small business owners
Freelancers
For these borrowers, the 12-Month Bank Statement Loan provides a much-needed flexible lending solution that traditional loans may not accommodate.
Suitable for Various Transaction Types
This loan program can be used for a variety of purposes, including:
Purchasing a home
Refinancing an existing mortgage
Cash-out refinancing to access your home’s equity
Can You Qualify if You Own 50% of a Business?
Yes, you can! However, if your business partner is not applying for the loan with you, your income will be calculated based on your percentage of ownership. For example, if you own 50% of the business, the lender will only use 50% of the income derived from the bank statements to qualify you. This could impact the loan amount you qualify for.
What if My Tax Returns Don’t Match the CPA’s Letter?
No worries! In a Bank Statement Loan, the lender doesn’t pull your tax returns from the IRS. Therefore, the information in your tax returns does not need to match the letter provided by your CPA. The letter relies on the third-party evaluation of your income by a licensed professional, and it helps the lender assess your financial situation more accurately.
Can You Qualify with a History of Foreclosure, Bankruptcy, or Short Sale?
Yes, you can still qualify for a Bank Statement Loan as long as the foreclosure, bankruptcy, or short sale occurred at least 12 months ago. Depending on how long ago these events took place, your down payment requirements may vary.
Can You Combine W-2 Income with a Bank Statement Loan?
Absolutely! If you're a business owner and your spouse has W-2 income, you can combine both incomes to qualify. The lender will calculate your income using your bank statements, and your spouse’s income will be verified using W-2s, pay stubs, and an employment verification. This could potentially increase the loan amount you qualify for if you have a mix of incomes.
Key Requirements for a Bank Statement Loan
You must own at least 25% of the business.
For owner-occupied properties, the maximum debt-to-income (DTI) ratio can go up to 55%.
You can use personal, business, or a combination of bank statements to verify income.
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