Bank Statement Loans: The Complete Guide (2024)

Everything You Need to Know about Bank Statement Loans

For self-employed individuals, qualifying for a home mortgage doesn’t need to be a challenge. Conventional lenders, FHA lenders, and VA lenders typically require prospective borrowers to provide significant documentation during the application process such as tax returns and W-2s, which can be difficult for those who are self-employed. Fortunately, bank statement loans allow self-employed borrowers to qualify for mortgages based on their existing assets and self-employment-based income – not just income from a “traditional” job.

Bank statement loans can be a great way for entrepreneurs, retirees, business-owners, independent contractors, and others to finance a home. In addition, they typically require borrowers to provide at least two years of bank statements to qualify.

In this comprehensive guide, we’ll review everything you need to know about bank statement loans, including who they are for, interest rates, qualification requirements, pros and cons, different types of loans, and so much more.

What is a Bank Statement Loan?

A bank statement loan is a type of mortgage that allows borrowers to finance a home based on their bank statements. This is in contrast to traditional mortgages, which require borrowers to provide W-2s as proof of income and/or tax returns. Bank statement loans are often considered non-QM (non-qualified) loans and are often provided by alternative mortgage lenders. Typically, borrowers are expected to provide 12-24 months of bank statements in order to demonstrate cash flow and income from either personal or business bank statement documentation. In addition, bank statement loans can be used to purchase several types of properties including primary, secondary, and investment properties.

Bank Statement Mortgage Loan Rates

Bank statement loan rates can vary based on a variety of factors. These include:

• Credit Score: Credit score requirements for bank statement loans can vary significantly, but most lenders generally only work with borrowers with credit scores 620+. Borrowers with lower credit scores generally need to provide higher down payments, and usually face higher interest rates.

• Down Payment: Bank statement loans with larger down payments (and lower LTVs) generally have lower interest rates than those with lower down payments. As mentioned, borrowers with lower credit scores must typically make larger down payments to qualify.

• Loan Amount: Depending on your lender, the total loan amount may or may not impact the loan’s interest rate. Larger loans may be relatively riskier for lenders, so they may sometimes come with higher interest rates/

• Home Location: Home location is generally not a major factor in interest rate pricing for owner-occupied properties. However, it can be a factor in purchasing a rental or investment property with a bank statement loan. In general, borrowers looking to purchase or refinance properties in primary markets, such as urban areas in states like California, Florida, and New York, with growing housing prices, will face lower interest rates than borrowers looking for a loan in secondary or tertiary markets, as these loans are riskier for lenders.
  

Fixed-Rate vs. Adjustable-Rate Bank Statement Loans

Bank statement loans come in two main varieties: fixed-rate and adjustable-rate loans. The most common adjustable-rate bank statement loan type is based on the 6-month SOFR (Secured Overnight Financing Rate). The Secured Overnight Financing Rate, or SOFR, is the interest rate at which banks lend money to each other for short periods of time, often “overnight.” Several years ago, SOFR replaced LIBOR (London Interbank Offered Rate) as the major benchmark interest rate upon which mortgages, consumer, and commercial loans are set.

In this context, SOFR is used as a benchmark for adjustable-rate mortgage rates. Adjustable-rate bank statement loans based on SOFR typically start at the SOFR rate when the loan is originated. Then, the interest rate is adjusted up or down every six months based on changes to the 30-day SOFR. Adjustable-rate bank statement loans may be easier to qualify for than fixed-rate loans, often with lower starting interest rates. However, when interest rates go up, adjustable-rate mortgages become more expensive. If borrowers are not careful, they may have trouble making their mortgage payments, especially if the interest rate increases particularly quickly.

What are the Differences Between a Bank Statement Loan and a Traditional Home Loan?

Bank statement loans have a variety of important differences when compared to traditional home loans. Traditional home loans generally consist of conventional loans, conforming loans, FHA loans, VA loans, USDA loans, and (sometimes) jumbo loans set by standards put in place by Fannie Mae and Freddie Mac. In contrast, as we’ve mentioned, a bank statement loan is a type of non-QM (non-qualified) mortgage, much like DSCR loans and other types of private mortgages.

Traditional Mortgage

• Employment and Citizenship Status: Traditional home loans are intended for individuals who have W-2 income (i.e., a traditional, full-time job), and a U.S. citizen or permanent resident with a social security number (i.e., not a foreign national without a green card or other SSN authorized immigration status).
• Credit Score Requirement: Traditional mortgages are intended for individuals with an active FICO credit score and poor to great credit (no bankruptcies or serious credit issues). For example, individuals can apply for FHA loans with credit scores as low as 580, though getting approved for this level of credit may be a challenge. Newer foreign nationals often do not have FICO credit scores, which could disqualify them from a traditional mortgage. However, we should note that conventional loans (not FHA or otherwise government-associated) do often require credit scores as high as 700.
• Tax Return Requirement: These loans typically require a lender to look at tax returns to verify income.
• Down Payment Requirement: FHA, VA, and USDA loans allow borrowers to make extremely low down payments. For instance, FHA loans allow borrowers to qualify with a down payment of as little as 3.5%, and VA and USDA loans do not require any down payment. Conventional loan down payments can often be a bit higher, often having a minimum down payment of around 20%.
• Terms: Most regular home mortgages allow borrowers to choose from a wide variety of loan terms, anywhere from a 5/1 ARM (adjustable-rate mortgage), to a 30-year fixed-rate loan.

Bank Statement Loans

• Employment Status: Bank statement loans typically do not require a borrower to have W-2 income or show tax returns. Therefore, as we’ve discussed, they can be an excellent choice for 1099 contractors, entrepreneurs, small business owners, and others.
• Credit Score Requirement: Different lenders have different credit score requirements. Unlike traditional mortgages, bank statement loans do not generally have a hard and fast credit score requirement. This can be extremely important for certain individuals. However, this isn’t to say that bank statement lenders completely overlook borrower credit scores. While a credit score may not be the most important approval factor, bank statement loan borrowers with higher scores may be able to get lower interest rates on their mortgage, and may also face more lenient down payment requirements. Some lenders, like us at Defy offer FICO scores down to 620.
• Tax Return Requirement: Bank statement lenders generally do not look at a borrower’s tax returns or tax statements. At Defy, for example, we don’t require a borrower to show tax returns during the loan qualification process.
• Down Payment Requirement: Bank statement loan down payment requirements vary significantly from lender to lender. At Defy, we offer bank statement loans up to 90% LTV. There are typically no ultra-low down payment options (such as the FHA’s 3.5% down option). However, some lenders may permit down payments as low as 10%, particularly if the borrower has strong bank statements.
• Other Requirements: Some mortgage lenders, like us at Defy, will review additional requirements such as deposit history, cash flow, and steady income for qualification purposes. It’s important to note that consistency is key regarding these transactions and is a large factor in determining qualification.
• Terms: Bank statement loan terms vary significantly by lender. On the short-term end, some lenders will offer 5-year 6-month SOFR-based ARMs. When it comes to longer-term loans, some lenders may offer 30-year fixed rate (or even 40-year fixed rate) loans. In addition, certain lenders may also offer 10-year interest-only loans.

Are Bank Statement Loans Still Available?

Despite regular changes to the economy, financial markets, and mortgage interest rates, bank statement loans are still available from many lenders. Of course, bank statement loans are not as easy to acquire as during the heydey of NINJA (no income, no job) mortgage lending, as we saw during the lead up to the 2008 financial crisis, but alternative mortgages like bank statement loans still represent a surprisingly large amount of mortgage originations in the United States. In fact, non-QM loan origination (including bank statement loan origination) exceeded $28 billion in 2021 alone, which demonstrates the strong market need and importance of bank statements and other non-QM loans. That said, if a bank statement loan is of interest, you’ll want to consider going to a lender who specializes in non-QM loans.

In essence, just because a borrower doesn’t fit into a traditional mold doesn’t mean they shouldn’t be able to finance a home, and therefore, bank statement and non-QM lenders play an essential role in the real estate industry, empowering entrepreneurs, small business owners, independent contractor, and others to experience the many benefits of home ownership.

What Are The Down Payment Requirements For Bank Statement Loans?

Just like a conventional loan, borrowers of bank statement loans are also expected to make a down payment. Though there are certain types of government-backed loans, such as an FHA loan, that don’t require a down payment, it’s a requirement for non-QM loans, which includes bank statement loans.

In addition to income being a qualifying factor for a bank statement loan, the amount you can put down can also affect your eligibility. Depending on your credit score, you can expect to put down anywhere between 10-25% of the purchase price of the property. The higher your credit score is, the more likely a lender would be willing to reduce your down payment requirements.

Below, we’ve outlined a rough estimate of the down payment requirements to expect depending on your credit score:

• 700+: 10%
• 660-699: 15%
• 620-659: 20%

Keep in mind that these are just guidelines and down payment requirements can vary between lenders. Some lenders may also take into consideration the loan-to-value ratio (LTV) of the loan when calculating down payment requirements.

What Are The Qualification Requirements For Bank Statement Loans?

Despite bank statement loans being classified as non-QM, there are still several requirements that borrowers are expected to meet before qualifying for one. Here’s what you should consider before applying for a bank statement loan:

• Do you have a stable income and cash flow? Even though bank statement loans are suitable for business owners and those who are self-employed, lenders still want to see if you have a stable history of business or self-employment income. Instead of using pay stubs or tax returns to prove income, bank statement loans allow borrowers to provide bank statements as proof of a stable income. Most lenders typically will require 12 to 24 months of statements which can be personal or business.

• What’s your credit score? Many lenders have a minimum credit score of around 620 to qualify for a bank statement loan. However, having a higher credit score can improve your chances of qualifying and can contribute to more favorable loan terms.

• What’s yourdebt-to-income ratio (DTI)? Lenders use the DTI ratio to determine whether borrowers can comfortably afford their regular loan payments. DTI requirements may vary depending on the lender, however, a general rule of thumb is that a lower DTI is more favorable. To calculate your DTI percentage, take your total monthly debt payments and divide that by your total monthly gross income.

• Do you have enough for the down payment? A down payment is required for a bank statement loan and the amount may vary depending on your credit score and the lender’s requirements.

• Do you have enough cash reserves? Some lenders require borrowers to have additional liquid cash reserves to be able to cover the closing costs and any emergencies that may arise.

The Bank Statement Loan Application Process

The application process for a bank statement loan is fairly similar to the application process of a traditional mortgage with the main difference being the documentation that’s required for qualification. Below, we’ll walk you through the typical bank statement loan application process.

1. Gather financial documents : The first step is to start gathering your financial documents early. Having all of your documents prepared and organized can help speed up the application process. Since a bank statement loan application requires bank statements as proof of income, make sure to have your 12 to 24 months of personal or business bank statements prepared.
2. Look for a lender : Not all lenders offer bank statement loans, so it’s important to do your research and carefully evaluate your options while shopping for lenders. Consider a non-QM lender, as previously mentioned. (We happen to be one of them!) Remember, though, qualification requirements may vary between lenders, and factors such as your income, credit score, and ability to pay the down payment should be considered.
3. Get a pre-approval : After you’ve found some lenders that are suitable, you can start the pre-approval process with each one. This can help you get a better idea of the total loan amount you qualify for and what your interest rate will be.
4. Apply for a loan : Once you’ve found a property that you’d like to buy, it’s time to choose a lender and submit a formal loan application. During this step, you will have to provide personal and financial information to help the lender make a decision. The documents that you gathered in Step 1 will be submitted along with the information you provide the lender in this step.
5. Wait for a decision from the lender : After submitting your formal application, the lender will pull your credit report and take all of the information and documents you provided into consideration while assessing your credit risk as a borrower. At this time, a property appraisal may be ordered by the lender as well to determine the value of the property concerning the loan amount being requested.
6. Approval : If the lender approves your application, you will then receive a loan approval letter from the lender that outlines the terms of the loan, including the total amount of the loan, interest rate, and monthly payment amount.
7. Closing : Now that you’ve received the loan approval letter, you can schedule a closing to sign the final loan documents. This is where you’ll sign the closing documents and the ownership of the property transfers to you, and where you pay the remainder of the closing costs so make sure to bring all the required funds to cover the costs. Congratulations! The property is now yours.

How Are Bank Statement Loans Calculated

Bank statement loans use an applicant’s bank statements from the previous 12 to 24 months to calculate their gross monthly income and debt-to-income (DTI) ratio. These figures can help underwriters determine the borrower’s eligibility for a certain loan amount.

Since bank statements contain a wide variety of different transactions, only certain transactions are used as qualification criteria. Deposits that are regular or recurring, such as rental income and business activities, would count towards the borrower’s gross income. However, any one-off large deposits would not be considered as part of gross income since including it would not paint an accurate picture of the applicant’s ongoing income.

Once suitable deposits are chosen for the specified period, all of the income is added together and then divided by the number of months for the period to determine the average monthly gross income.

For example, if the specified period is 12 months and the total qualifying deposits add up to $120,000, the average monthly gross income would be $10,000.

Having the applicant’s average monthly gross income allows the underwriters to then calculate the DTI ratio, which is calculated by taking the total monthly debt payments divided by the average monthly gross income. For example, if an applicant has a $300 car payment and a $1,000 credit card bill every month, their total debt payments would total $1,300 per month. With the average monthly gross income of $10,000 from the previous example, this person would have a DTI of 13%.

After taking into account average monthly gross income, credit score, DTI, and the property value, the underwriter can then determine whether the applicant is qualified. If they are, then they calculate the interest rate and maximum loan amount.

Bank Statement Loans For Self-Employed Individuals

Bank statement loans are a popular option for self-employed individuals since they may have a variable income or may not be able to show accurate tax returns due to business write-offs. With a traditional loan, lenders require documents such as pay stubs, W2s, and tax returns to verify income. Since self-employed individuals don’t receive pay stubs, tax returns, or W2s from an employer, they can use bank statements as proof of income to supplement their application when applying for a bank statement loan. This simplifies the loan application process for self-employed individuals who may have fluctuating income from non-traditional income streams, which could also include small business owners, gig workers, and freelancers.

In comparison to a traditional mortgage, bank statement loans also tend to require fewer documents, which makes the approval process quicker for applicants. If you’re a self-employed individual who is interested in applying for a bank statement loan, be sure to shop around for a lender that has experience working with other self-employed individuals.

Bank Statement Loan Example

Ben is a 28-year-old freelance photographer and small business owner who lives in Knoxville, TN. After graduating college, Ben has been dedicated to improving his photography skills and growing his wedding photography business. Photography has been his main source of income for the past six years and Ben has never been traditionally employed.

As Ben approaches his late 20s, he’s ready to tackle the next milestone in his life – Buying his first home. Despite having a non-traditional source of income, Ben has a clean credit history and a favorable credit score of 710. However, he’s hesitant to start the loan process because he knows his income is variable and he can’t provide pay stubs or W2s to prove his income. He’s not sure what his options are, so he speaks to his father, who recommends that Ben contact his mortgage broker. The next day, Ben calls his father’s mortgage broker and discovers bank statement loans.

Ben was not aware that bank statement loans existed and made homeownership easier for self-employed individuals like him. After speaking to the mortgage broker, Ben is motivated to make his homeownership dreams come true and begins to gather his bank statements from the past 24 months. Through the pre-approval process, he finds out that he’s qualified for a maximum loan amount of $300,000 at a 5.5% interest rate.

Ben is ecstatic and starts home shopping with his realtor. Ben has up to $50,000 he could put down as a down payment on the home, though the lender advised that because of his good credit score, he would only need to put down a minimum of 10% of the purchase price. Keeping his budget in mind, 14 home tours later, he finds a home he can see himself living in for an asking price of $325,000. After submitting an offer at the asking price, the seller accepts and now it’s time for Ben to submit a formal loan application. He provides all the necessary information and documentation to the lender.

Two weeks later, Ben is notified by the lender that he has been approved! He decides to put down the minimum amount of $32,500 and keep the remaining $17,500 in cash for emergencies. The remaining amount of $292,500 is financed through the bank statement loan at an interest rate of 5.5%, which makes Ben’s monthly payment approximately $1,661 per month for a 30-year fixed mortgage.

Who Is A Good Candidate For A Bank Statement Loan?

• Entrepreneurs
• E-commerce Professionals
• Individuals With Multiple Streams of Income
• Influencers
• Retirees
• Freelancers
• Consultants
• Independent Contractors/1099
• Small Business-owners
• Self-employed Individuals such as Lawyers and Doctors
• Artists
• Real Estate Investors
• Truck Drivers
• Bad Credit Borrowers

The Pros and Cons of Bank Statement Loans

Pros

1. Alternative income verification: For those who don’t work a traditional job that provides them with pay stubs and W2s, bank statement loans provide them with an opportunity to qualify for a mortgage.
2. Flexibility: Since bank statement loans are non-QM, lenders can be a bit more flexible with eligibility criteria and payment terms.
3. A wider range of people can apply: Bank statement loans can allow access to homeownership for those who don’t have a traditional income source.
4. Faster approval process: Bank statements can give a quicker snapshot of the applicant’s current income compared to tax returns and require less documentation which can potentially speed up the approval process.
5. Possibility of more relaxed DTI requirements : Some bank statement loan lenders allow a higher DTI ratio, which makes it easier to qualify for a mortgage for applicants who have existing debt.
6. Larger loan amounts: Bank statements enable lenders to access more accurate income information in comparison to traditionally required documents, which may permit for higher loan amounts than traditional loan options.

Cons

1. Limited availability : Not all lenders offer bank statement loans. Since bank statement loans are non-QM, they’re more likely to be offered by specialized lenders compared to traditional banks and credit unions.
2. Higher down payment requirements : Compared to a traditional loan that can sometimes allow borrowers to put down as little as 3%, bank statement loans typically require between 10-20% down.
3. Possibility of higher interest rates : Depending on the lender, bank statement loans may have higher interest rates because of the perceived higher risk than traditional mortgages.

The Uses Of Bank Statement Loans

• Bank Statement Loans For New Construction
• Bank Statement Loans For Manufactured Housing
• Bank Statement Loans For Land

Bank Statement Loans For Self-Employed Borrowers

Many people, such as those who are self-employed, struggle to provide the paperwork traditionally required to get a mortgage. When borrowers lack the necessary documentation, they may desperately need a loan but be unable to qualify for traditional mortgage financing.

As previously discussed, bank statement loans can be an excellent choice for self-employed borrowers who do not have W2s. However, they are far from the only loan option for self-employed individuals and entrepreneurs. Other attractive loan products for these borrowers include interest-only loans and P&L loans. Asset depletion loans may also be a great option if an entrepreneur has a large amount of liquid assets or is of retirement age with liquid assets.

The Different Types of Bank Statement Loans

There are a wide variety of bank statement loan options on the market today, each of which caters to a specific type of borrower with different needs and requirements. Below, we’ll review some of the most common types of bank statement loans that are available to borrowers:

• Bank Statement Equity Loan and Bank Statement Loan HELOCs: Bank statement equity loans are an excellent option for borrowers who want to take cash out of their property for a large, one-time expense, such as purchasing another property or starting a business. In contrast, bank statement HELOCs may be ideal for borrowers who want to easily access funds over time, whether to supplement their income or pay for recurring expenses, such as a child’s college education.

• Bank Statement Jumbo Loans: Bank statement jumbo loans exceed the conventional loan limits set by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. These limits are currently set at $726,000 for single-family homes in all states except Alaska and Hawaii and other high-cost markets. In these markets, jumbo loans start at $1,089,300. In addition, it should be noted that conventional loan limits are larger for 2-4 unit properties, meaning that loans for these types of properties need to be larger to be considered jumbo loans.

• 6-Month SOFR Bank Statement Loans: As we mentioned earlier in this article, 6-Month SOFR Bank Statement Loans are adjustable-rate bank statement loans (ARMs) that adjust every six months based on the current SOFR (Secured Overnight Financing Rate) plus a premium.

• P&L Bank Statement Loans: P&L bank statement loans are loans that allow small business owners and entrepreneurs to have a licensed tax preparer provide their business’s 1-2 year profit and loss (P&L) statement as their proof of income rather than their tax returns. This can sometimes be much easier than providing personal tax returns and may allow a borrower to qualify for a larger loan.

• Business Purpose Bank Statement Loans: Unlike the other types of bank statement loans on this list, business purpose bank statement loans are not intended to fund the purchase of a primary residence or investment property. Instead, they are used to finance the borrower’s business activities, including employee payroll, marketing, advertising, or business-purpose real estate. Business bank statement loans generally have higher interest rates than bank statement loans for owner-occupied or investment properties since funding small businesses can be risky for lenders.

• Personal Bank Statement Loans: Like business purpose bank statement loans, personal bank statement loans are not intended to finance a property. Instead, they are used to pay for personal, non-business expenses. These loans typically have much higher interest rates than traditional or business-purpose bank statement loans, as they are generally not secured by real property.

• 1099 Loans: 1099 loans are a type of bank statement loan in which a borrower uses their 1099 statement as proof of income. These types of loans are ideal for independent contractors and small business owners who do not have W2 statements.

Bank Statement Loan Refinancing

If you currently have a mortgage, whether traditional or bank statement, and are looking to refinance or “take cash-out,” bank statement loan refinancing could be beneficial depending on your circumstances.

One scenario where refinancing from a traditional mortgage to a bank statement loan can be helpful is if you previously worked as a W2 employee, but have since changed gears to self-employment or entrepreneurship. Refinancing to another traditional mortgage may be difficult without certain documents like pay stubs and W2s.

A cash-out refinance to a bank statement loan can also help borrowers unlock equity in their home since they can offer up to 90% of a home’s value with no private mortgage insurance (PMI) required. This can help a borrower consolidate debts or free up cash for other purchases, such as home renovations or a new vehicle. Some lenders, like us at Defy, allow for unlimited cash-out/cash in hand.

Alternatives To Bank Statement Loans

• • FHA Loans:FHA loans are among the most popular types of loans on the market today due to their flexible down payment and credit requirements. In fact, many borrowers can put down as little as 3.5% on their loan. FHA loans can be ideal for first-time homebuyers, as these borrowers can often qualify for down payment assistance programs that can further reduce– or even eliminate their down payment.
  • VA Loans:VA loans are intended only for service members, veterans, and surviving spouses (under certain conditions). These loans have even lower down payment requirements than FHA loans, with most borrowers allowed to provide no down payment for their loans.
  • USDA Loans:USDA loans are an ideal option for low-income individuals in rural areas. Like VA loans, USDA loans generally do not require any down payment. However, borrowers must meet strict income eligibility limits and must be in a rural area with less than 35,000 residents.
  • Conventional Loans: Conventional loans are the traditional path to homeownership and are offered through almost every mortgage lender. However, since they’re considered to be a qualified mortgage (QM) loan and need to meet the standards of Fannie Mae and Freddie Mac, they have stricter eligibility requirements including how income is verified. Pay stubs, tax returns, and W2s are typically required for a conventional loan.
  • Asset Depletion Loans: Asset depletion loans allow borrowers to use their liquid assets, such as stocks and bonds, in place of income. If a borrower has no income but has a significant portfolio of liquid assets, an asset depletion loan can allow them to qualify for a mortgage.
  • DSCR Loans: DSCR stands for debt service coverage ratio. Rather than using the borrower’s personal income, the eligibility for a DSCR loan is based on the property’s cash flow, making this loan type a good option for real estate investors. To calculate a property’s DSCR, take the property’s net operating revenue and divide it by the current debt obligations.
  • Interest-Only Loans: Interest-only loans allow borrowers to only pay interest during an initial period of anywhere between 5-10 years. During this period, since only interest is being paid, the borrower does not build any equity in the property. After this initial period ends, the borrower has to start paying both interest and principal, which can be significantly higher than the initial payments.
  • Portfolio Loans: Portfolio loans are a type of mortgage where the lender keeps the loan in their own portfolio, rather than selling it on the secondary mortgage market. Because the lender is retaining the loan in their own portfolio, they can be more flexible with the criteria and qualifications they require from applicants. Their availability is limited since they’re not usually advertised. Lenders tend to reserve them for their higher-value customers or customers that they have a relationship with.
  • Profit and Loss Statement Loans: These loans eliminate the need for tax returns. They instead depend upon a business’s profit and loss statements to determine whether or not there’s enough money coming in to pay off the mortgage, along with other operating expenses.
  • Foreign National Loans: Another type of Non-QM loan, these loans are specifically designed for non-US citizens and non-US residents. These loans make it easier for foreign nationals to buy property in the US without a US credit score (FICO), green card, visa, or social security number. The main benefit of a foreign national loan is having access to the US housing market despite not being a US citizen or resident, which can allow you to have investment gains and diversify your investment portfolio.

  Bank Statement Loans With Bad Credit

  If you have bad credit and are looking to get a bank statement loan, you may be wondering if it’s even possible to qualify. Having a lower credit score can make qualifying for a bank statement loan more challenging, however, it’s not impossible. Here are a few additional factors that a lender may consider to compensate for your poor credit:

  • • Prove you have a high income : If you have bad credit, but have a high income, proving that to the lender can positively affect your loan application. The high income can potentially offset your credit risk depending on the lender.
    • A larger down payment : Putting down a larger down payment of 20% or more can lessen the lender’s risk and show you’re a committed borrower.
    • Having a large asset portfolio : Showing the lender that you have valuable assets, such as savings and investments, can boost your application.

    If you still have none of the above, you can consider taking some time to improve your credit before applying for a mortgage or finding a co-signer to make the loan more secure.

    Who Does Bank Statement Loans?

    Bank statement loans are non-QM loans, which means they’re not subject to the standards of Fannie Mae and Freddie Mac. Because of this, bank statement loans are mostly offered by non-traditional and specialized lenders. Some traditional banks might offer bank statement loans, but their eligibility requirements tend to be stricter than non-traditional lenders. Since bank statement loans are not offered by all lenders, it’s important to do your research when evaluating your options. If you’re not sure where to look for lenders, speaking to a mortgage broker or financial advisor could be a good place to start.

    The Top 10 Bank Statement Loan Lenders of 2023

    1. North American Savings Bank

    North American Savings Bank is the 422nd largest bank in the nation.

    Over the past decade, North American Savings Bank has serviced over 103,000 home loan customers, delivering over $31 billion in total volume. They’re a reliable, steady lender who offers competitive rates.

    2. Griffin Funding

    Griffin Funding was founded in 2013, and they specialize in VA Loans, bank statement loans, and DSCR loans – so they’re an attractive option for borrowers looking for bank statement loans. They’re a fully digital lender, so you’ll be able to monitor the loan’s progress through their online portal.

    3. Angel Oak Mortgage Solutions

    Angel Oak is one of the largest non-bank originators of non-QM loans. Borrowers from Angel Oak rate their customer service as being one of the biggest draws to working with the company. They have about 4.8 stars based on roughly ~1,100 Google reviews.

    4. Defy Mortgage

    Defy Mortgage is a non-bank lender with a simple, clear mission: to empower dreams, enrich lives, and elevate the mortgage experience for non-traditional borrowers, such as foreign nationals, real estate investors, business-owners, retirees, and more. An up-and-coming titan of the industry with 75+ product offerings, Defy specializes in non-QM loans and is comprised of a team with over 100+ years of combined industry experience helping non-traditional borrowers obtain home financing.

    Considering that the number of gig workers is at an all-time high, Defy understands that borrowers today need different options than what traditional lenders are offering.

    5. Flagstar Bank

    Flagstar Bank has its headquarters in Troy, Michigan. It was originally founded in 1987 but was acquired by New York Community Bancorp in December of 2022, making it one of the largest banks in the United States. It has roughly $31 billion in total assets and an A+ rating from the Better Business Bureau.

    6. Direct Mortgage Loans

    Mike Naylor and Ashley Mills founded Direct Mortgage Loans in 2007. Since then, they’ve serviced more than 15,000 loans with more than $4 billion in volume. While not one of the largest banks on the list, Direct Mortgage Loans can offer borrowers a personalized approach.

    7. HomeLife Mortgage

    HomeLife Mortgage specializes in non-QM loans, including bank statement loans and DSCR rental loans in California, Florida, and Texas. If you’re looking for either of those loan types in those states, HomeLife could be a good option. HomeLife has a 4.9 star rating on TrustPilot based on over 100 reviews, making them a top contender in the bank statement loan space.

    8. American Financing

    Damian and Gabie Maldonado founded American Financing in 2001. In 2022, The Denver Post listed them as one of the best places to work and Colorado Biz listed it as one of the top 50 family-owned businesses in Colorado.

    9. JVM Lending

    JVM Lending has a 5.0 star average on Google, based on over 600 reviews. They boast a “no loan officer model,” which they say allows them to close faster than other companies, offer lower rates and provide fully underwritten preapprovals. While they don’t have tons of information on their site about bank statement loans and their model might have some drawbacks to people in unique situations, they’re still one of the top providers in the industry.

    10. Northstar Funding

    Northstar Funding prides itself on exceptional customer service. They offer access to conventional and non-QM loans. Based in Midland Park, New Jersey, they have a reliable reputation on Google, with generally positive reviews.

    
    The Top 10 States For Bank Statement Loans

    1. California : California has the highest percentage of self-employed individuals at 14.4% of the state’s population . The large number of people who have non-traditional income sources, paired with a larger pool of specialized lenders that offer non-QM loans, make California the top state for bank statement loans.
    2. New York : Similar to California, New York has a fairly large percentage of its residents being self-employed, with 9.8% of the state’s population falling under this category in 2021. New York also has a higher number of specialized lenders offering non-QM loans, making bank statement loans more accessible.
    3. Texas : With no state income taxes, many entrepreneurs have been moving from higher-cost-of-living areas to Texas with hopes of buying a larger property for less. With the increasing number of self-employed individuals and business owners, Texas is another popular state for bank statement loans.
    4. Florida : According to the US Census Bureau , out of the top 10 cities with the most self-employed people, 6 cities from Florida made the list, making bank statement loans a popular option for this state.
    5. Illinois : Illinois has a larger amount of specialized and non-traditional lenders, which means that non-QM loans, including bank statement loans, are easier to find and more accessible.
    6. Virginia : Being in close proximity to the economic hub of Washington DC, Virginia also boasts many self-employed residents, who would benefit from bank statement loans over traditional loans.
    7. Washington : With tech giants settling into Seattle and a thriving gig economy, Washington state also has a higher-than-average percentage of self-employed residents.
    8. Arizona : Considering that Scottsdale, AZ made it to number six on the top 10 cities with the most self-employed people with 15%, Arizona has a strong freelance and entrepreneurship scene.
    9. Colorado : Colorado’s nature attracts nature lovers who are searching for a balanced lifestyle. Naturally, those who are self-employed are drawn to the type of lifestyle that Colorado has to offer.
    10. Oregon : With the rising cost of living in California, many Californians have moved to Oregon in search of lower real estate prices. Oregon has a growing real estate market, which means that there’s a higher demand for both QM and non-QM loans.

    Bank Statement Loan FAQs

    What is a Bank Statement Loan?

    A bank statement loan is a mortgage that uses your bank statements, instead of tax returns, to verify income, making it ideal for self-employed individuals or those with non-traditional income streams.

    Are Bank Statement Loans Still Available?

    Yes! Bank statement loans are still available through various lenders.

    What are the Differences Between a Bank Statement Loan and a Traditional Home Loan?

    The main difference between a bank statement loan and a traditional home loan lies in the income verification process. While traditional loans rely on standard income documentation like tax returns and pay stubs, bank statement loans use bank statements to verify income, making them more accessible for self-employed individuals or those with non-traditional income sources. Traditional loans rely on tax returns and W-2s, often requiring a lower down payment but potentially being stricter on credit score and income stability.

    What Are The Down Payment Requirements For Bank Statement Loans?

    Bank statement loans typically require a down payment of 10-20%, higher than traditional loans, but offer flexibility for non-traditional income with relaxed credit scores and DTI requirements.

    What Are The Qualification Requirements For Bank Statement Loans?

    Specific qualification requirements vary between lenders. However, you generally need a credit score of 620+, a debt-to-income ratio below 50%, consistent income for 12-24 months shown through bank statements, and a down payment of 10-20%.

    Who Is A Good Candidate For A Bank Statement Loan?

    Individuals who have fluctuating income from non-traditional income streams are good candidates for a bank statement loan. Some examples include: self-employed individuals, small business owners, entrepreneurs, gig workers, freelancers, and more.

    Who Does Bank Statement Loans?

    Since bank statement loans are considered to be non-QM loans due to their non-traditional income verification process, they are mostly offered by specialized lenders and some mortgage brokers. Though some traditional banks may offer bank statement loans, they often have stricter eligibility requirements.

    How Many Months of Bank Statements to Qualify for a Bank Statement Loan?

    The exact number of months of bank statements required varies between lenders. However, the general rule of thumb is to prepare between 12 to 24 months of bank statements.

    Are Bank Statement Loans Non-Qualified Mortgages?

    Yes, bank statement loans are non-qualified mortgages. This is because they don’t follow the strict qualification criteria set by Fannie Mae and Freddie Mac due to the non-traditional income verification process.

    Can You Get a Bank Statement Loan Without a Bank Statement?

    No, by definition, bank statement loans rely on your bank statements to verify income. Without them, lenders wouldn’t have the necessary information to assess your financial situation and approve the loan.

    Bank Statement Loans vs. No Doc Loans: What’s The Difference?

    Bank statement loans utilize bank statements to verify income for self-employed individuals or those with non-traditional income sources. While no-doc loans typically involve minimal or no documentation of income, but require high credit, assets, and often have stricter terms and higher costs. We don’t offer no-docs at Defy.

    What Is The Minimum Loan Amount For a Bank Statement Loan?

    The minimum loan amount for a bank statement loan varies, but typically starts around $100,000 to $175,000, depending on the lender and property type.

    Can I Use a Bank Statement Loan on a Second Home?

    Yes! You can use a bank statement loan on a second home.

    Can I Use a Bank Statement Loan on an Investment Property?

    Yes! You can use a bank statement loan on an investment property.

    Are Three Month Bank Statement Loans Available?

    While not common, some specialized lenders might offer bank statement loans based on just 3 months of statements. However, this is typically for exceptionally strong borrowers with high credit scores, low debt-to-income ratios, and significant assets. Expect stricter requirements and potentially higher interest rates compared to traditional 12-24 month bank statement loans.

    Can You Get a Bank Statement Loan Without a Bank Statement?

    No, by definition, bank statement loans rely on your bank statements to verify income. Without them, lenders wouldn’t have the necessary information to assess your financial situation and approve the loan.

    Other Non-QM Loan Options Other Than Bank Statements?

    There are several Non-QM loan options other than Bank Statement loans like: Foreign National Loans, Profit and Loss Statements, Interest-Only Options, DSCR Loans, Construction Loans, Asset Depletion Loans, and more.