Traditional qualifying loans may no longer be enough for certain banks since more people are working on a freelance or gig economy basis and in other non-traditional jobs. The 24-month bank statement loan is one of the most recent schemes for non-traditional employees. Instead of relying just on W2s, these bank statement loans examine the totality of an employee’s income.
We will discuss the 5 major things you should know about a 24-month bank statement mortgage loan.
1. Is There Any Difference Between Conventional or Traditional Loans and Bank Statement Loans?
Conventional lenders look at many years’ worth of pay stubs, W2s, and tax returns to assess the risk of lending to a given borrower. Traditional workers can benefit from this, but individuals with non-traditional incomes can’t benefit from it. Some of these employees may have a fluctuating or seasonal income as well as several sources of income and large tax deductions.
With bank statement loans, your average gross income over the last 24 months is used instead of W2s. Rather than merely seeing snippets of your revenue, this gives the lender a more complete view.
2. Benefits of a Bank Statement Loan
A bank statement loan has the following advantages:
- The lender doesn’t need to see your tax returns or transcripts.
- Regular monthly income deposits are what make up your income statements.
- It is possible for the lender to look at 12 or 24-month bank records.
- A P&L statement and 24 months of business statements are required if you run your own firm. A Certified Public Accountant (CPA) prepares a P&L statement (profit and loss statement). If you’re a small company owner, you may not have to provide one.
- You may put down as low as 10% of the purchase price for a bank statement house loan.
- Up to 85% of the value of your home may be refinanced with a cash-out refinance loan.
- Up to $5 million may be borrowed.
- The maximum debt-to-income ratio accepted by bank statement lenders is typically 55 percent.
- You may choose between a fixed-rate and an adjustable-rate loan.
- An interest-only mortgage may be a possibility for you.
3. Disadvantages of a Bank Statement Mortgage
For certain borrowers, bank statement house loans provide additional flexibility and unique prospects; nonetheless, it may not be the best option for everybody.
The following are a few possible drawbacks for certain borrowers:
- When applying for a loan as a self-employed borrower, there are several restrictions, such as the fact that you must be self-employed for at least two years before applying.
- Depending on your credit score and general financial situation, you may face higher interest rates and down payments compared to more conventional lending choices.
- Bank statement loans are not subject to the same regulations as typical mortgages since they are non-QM credit. This implies that the qualifying requirements used by mortgage lenders are flexible.
4. 24-Month Bank Statement Mortgage Loan Standard Requirements
Depending on the lender, the requirements may differ. For non-qualified mortgage loans, lenders may set their own standards. Although there may be some differences, there are certain typical requirements that you must fulfill.
- You’ll need to provide a 24-month bank statement to get a loan. Certain lenders may accept personal and company accounts, while others may only check business accounts.
- Typically, a 10% down payment is needed. You may be asked to put down as much as 20% if you have a poor credit score.
- There are programs available if you have a credit score of less than 580, but most lenders want a FICO score of at least 580. You’ll have to put more money down if your credit score is bad.
- Debt to income ratio (DTI): Most lenders tolerate slightly greater than normal DTIs. The highest percentage is often in the range of 50%.
- The maximum amount that may be borrowed varies from lender to lender. Some lenders may only authorize loans up to $2 million, while others may go as high as $5 million.
- Lenders often require an official profit and loss statement generated by a CPA.
Some additional important tips:
Reduce Your Debt: The amount of debt you have may directly affect your credit score, even though certain bank statement mortgage programs allow for a larger debt-to-income ratio. Better interest rates and smaller down payments result from having a higher credit score than the bare minimum. Paying off debt may be more beneficial than a bigger down payment since it lowers your interest rate.
Help Them Understand Your Business: Your lender may have no idea what you do. Be prepared to explain your industry and seasonal variations in a short manner. Consider saving articles or other material about your work that may assist a person who has no prior understanding of the subject to better understand it.
Stay Organized: It’s crucial to keep track of your finances since lenders will look at your bank statements. This means that your business-related documents, such as proof of employment, business licenses, and contracts, should be readily available. When managing numerous revenue sources, it’s best to get started as soon as possible.
5. How Do I Find a Bank Statement Loan Provider?
It’s critical for self-employed borrowers to conduct their research before deciding on a bank statement lending institution since interest rates and other crucial components of a bank statement loan program rely on the lender’s particular conditions for acceptance.
The following are some basic guidelines for finding a reputable mortgage lender:
- Start by looking at their ratings and reviews to see whether they’re a reputable lender you can rely on. One method to accomplish this is by checking their ratings and reviews on many platforms. If so, what are people saying? If there are any, what are they?
- Check out their customer service before taking out a loan from them. Do they seem to be looking out for your best interests? How beneficial are they, or how unhelpful are they?
- A savvy borrower knows what questions to ask and what information to look out for when evaluating a loan offer to get the most out of the deal. Before deciding on a bank statement mortgage, you should research to discover the greatest deal possible.
Have you been able to be approved for a personal bank statement loan during the last 24 months? Using the comment section below, please share your thoughts and advice.