Are you interested in a bank statement loan refinance?
If you are self-employed and don’t have the necessary pay stubs to apply for regular mortgages, you’ve come to the right place!
Whether you’re a freelance employee, business owner, retiree, gig worker, or individual contractor, a bank statement mortgage might just be what you are looking for.
But here’s the question of the day: is a bank statement loan right for you?
Today, we will help you understand different aspects of this loan type, which will hopefully shed some light so you can decide whether you should apply for it. Let’s dive right in!
What are bank statement loans?
Essentially, bank statement loans are the main alternative to traditional mortgages for borrowers who can’t prove their income in the traditional way. This means people who don’t have tax returns, W2s, and paychecks.
In other words, these non-QM loans are made for people who have nontraditional documentation for their income. From entrepreneurs, freelancers, contractors, gig economy workers, and realtors, to sole proprietors and retirees.
You will need to submit at least 12 months’ bank statements with regular deposits to show your lender how much you can afford.
Bank Statement Loan Refinance Interest Rates
You don’t need any tax return or income documentation to qualify for a bank statement loan; bank statements alone are enough. This means that the interest rates for your mortgage will be determined by your loan-to-value ratio.
LTV is calculated by comparing the property’s worth to how much you are looking to get from the refinance. A low LTV ratio will secure you a lower interest rate, which can help you save some money.
Advantage of Bank Statement Loan
There are a lot of benefits to a bank statement loan, with the main one being you can put down as little as 10% for down payment and borrow up to $5 million. You don’t have to submit tax returns, can choose between 12 or 24-month statements, and can use your business’ P&L statement as proof too.
Moreover, you can apply for a cash-out refinance and tap up to 85% of your home’s value! Not to mention the option of getting an interest-only loan, and a fixed-rate or adjustable mortgage.
Disadvantage of Bank Statement Loan
With all that in mind, there are still a few drawbacks you may want to be aware of before getting a bank statement loan. The biggest one is that you need to be self-employed for at least two years, so this might not be a feasible option if you’re just getting started or can’t provide the necessary proof.
The interest rates may also be higher than traditional loans, although this will depend on your credit score and other financial documents.
Type of Bank Statement Loans for Refinancing
There are a few bank statement loan programs you can choose from.
The typical requirement is at least 12 months of statements, although submitting 24 months may give you a better chance of getting lower rates and better loan terms. Some lenders will also ask for business statements, so you make sure to double check.
In certain situations, you may even need to submit a P&L statement for your business.
Bank Statement Loans VS Traditional Home Loans
A bank statement loan is different from a traditional home loan as the former is designed for people without a W2 job. This includes business owners, consultants, freelance employees, and independent contractors. The borrowers use bank statement documents to prove that they can pay back the loan.
On the other hand, traditional mortgages are for employees who have a W2 job and require a down payment as well as a minimum credit score. These ones tend to have a wider range of options, from short-term to 30-year loans.
How do I find a bank statement loan lender?
Factors such as interest rates and other loan details will vary from lender to lender, which means it can be important for you to find the right lender that can give you the best possible deal! Therefore, doing your due diligence is crucial.
The first thing to do is do your research by browsing through online reviews and ratings. Does the lender have a credible online presence? Make sure to check with multiple platforms to ensure that the reviews are legit. Be wary of any customer complaints and what people like about their service.
Next, you can test out their customer service. Don’t hesitate to reach out and ask any question you might have. How does the lender treat potential customers? Good lenders should be helpful and attentive.
Note that bank statement loans are non-QM, which means that they may not be available on all mortgage lenders. Some banks don’t even offer them, so you might want to try specialized companies who do only mortgage loans.
You should also ask the lender whether they prefer personal bank statements or business statements, as well as how many months they need to process your application.