Bank Statement Loan for Self-Employed Borrowers: The Ultimate Guide

As a self-employed individual, qualifying for a mortgage can be a challenging, sometimes overwhelming process. This is where a bank statement loan for self-employed borrowers comes in. In this guide, we’ll explain how bank statement loans work, who qualifies, the benefits they offer, and why this might be the perfect option if you’re self-employed and looking to buy a home.

What is a Bank Statement Loan (BSL)?

The BSL is a type of non-qualified mortgage (non-QM) designed specifically for self-employed borrowers. The loan doesn’t follow the traditional guidelines set by Fannie Mae and Freddie Mac. Instead, it uses your personal and business bank account statements to assess your ability to repay the loan.

If you have a successful business or freelance work, but your net income after deductions doesn’t reflect your full potential, this type of loan can allow you to qualify for a mortgage in a way that aligns better with your financial reality.

Who Should Consider a Bank Statement Loan?

If you are self-employed—whether you’re a business owner, contractor, freelancer, or real estate agent—a bank statement loan for self-employed borrowers might be the right fit for you. Here are some everyday situations where this type of loan could be beneficial:

• You earn a significant income, but your business expenses reduce your taxable income.
• You don’t show enough net income on your tax returns to qualify for a traditional loan.
• You want to purchase a home or refinance without changing your business practices or tax filings.

How Bank Statement Loans Work

Lenders will use either 12 or 24 months’ worth of your business or personal bank statements to determine your income. Here’s a breakdown of the process

1. Income Calculation: Lenders will review deposits made into your business or personal bank accounts. This is considered your gross income.
2. Expense Factor Ratio: Typically, a 50% expense factor is used to calculate your net income. For example, if you deposit $100,000 into your account, only $50,000 may be counted as income based on this expense ratio.
3. Adjusting for Expenses: If your actual expenses are below 50%, a certified public accountant (CPA) can issue a letter confirming that your expenses are a lower percentage of your income. This can increase your qualifying income and help you get approved for a larger loan.

Loan Options and Terms

The key advantage of bank statement loans for self-employed borrowers is the flexibility they offer in loan amounts, interest rates, and repayment options.

• Loan Amounts: You can secure a loan amount of up to $4 million, and in some cases, even higher.
• Loan Types: These loans can be used for purchases, rate-and-term refinances, or cash-out refinances.
• Interest-Only Options: Since this is a non-QM loan, interest-only options may be available to help reduce monthly payments.
• Adjustable-Rate Mortgages (ARMs): There are several ARM options, including 5/1, 7/1, and 10/1 loans.
• Reserves: Typically, you’ll need to provide at least 3 months’ worth of reserves (savings), though this may increase depending on the loan amount.

What You Need to Qualify

While bank statement loans for self-employed borrowers are more flexible than traditional mortgages, there are still some requirements to qualify:

1. Credit Score: The minimum credit score for a bank statement loan is usually around 640. However, the higher your credit score, the better the interest rate and loan terms will be.
2. Self-Employment History: While traditional lenders typically require 2 years of self-employment, some bank-statement lenders accept 12 months. In some cases, exceptions can be made for those with at least a year of income.
3. Down Payment: You can put as little as 10% down on a bank statement loan, making it a great option if you want to buy a home but don’t have a large down payment saved.
4. Reserves: Lenders prefer to see reserves covering at least 3 months of payments. This demonstrates that you can maintain the loan in the event of financial hardship.

Benefits of Bank Statement Loans

• Less Focus on Tax Returns: Since the loan is based on your actual deposits, it’s a good option for people with high expenses who still generate significant income.
• Flexibility: With options for different loan amounts, repayment plans, and even interest-only loans, there’s a lot of flexibility for self-employed borrowers.
• Lower Down Payment: With only 10% down, you can get into a home with less upfront cash.

Is a Bank Statement Loan Right for You?

If you are self-employed and looking for a way to qualify for a home loan, a bank statement loan could be the answer. These loans are specifically designed to help people who don’t have traditional W-2 income but still want to purchase or refinance a home. If you’re ready to explore this option, reach out to a mortgage professional.