Bank Statement Loans: Who They Are For, How They Work, and When to Use Them

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When you apply for a home loan, you often need to provide your W-2s and tax returns. But what if you don't have these?

Bank statement loans are a type of loan that allows you to get a mortgage without the documents that most loans need to prove your income. They are also known as self-employed mortgages or alternative documentation loans.

Bank statement loans can be used if you work for yourself or own a business. They can also be used if you do not have a steady income or have more than one employer who can prove your salary.

Learn more about bank statement home loans and how they work.

Key Takeaways

  • Bank statement loans are a type of mortgage that lenders can issue based on personal info and bank statements rather than tax returns and employer verification.
  • They can be a good option if you work for yourself, own a business, or don't have a steady income.
  • A bank statement loan may come with a higher interest rate and need a larger down payment.
  • Be sure to compare a bank statement loan offer with other loans you might be able to get.

How Do Bank Statement Loans Work?

Bank statement loans don't need your tax returns, W-2s, pay stubs, and employer verification forms. Instead, you can use your personal bank accounts, or personal and business bank accounts, to prove your income and cash flow. 

You will still need to give your lender some of the normal paperwork as part of the loan process. In fact, you may have even more forms to fill out and documents to provide. This is because proving your income will be more complex than for a conventional loan.

Some of the things you may need for a bank statement loan are:

  • 12 to 24 months of personal or business bank statements
  • Two years’ history of self-employment
  • A credit score that is at last fair, often good (the exact score you need will depend on your lender)
  • Enough cash or other liquid funds to cover several months of your mortgage payments
  • Proof of any liquid assets such as a 401(k) or investments
  • Your business license, if you have one
  • A letter from your accountant (or the person who does your taxes) proving your business expenses and stating that you file your tax returns as an independent contractor

The exact things you will need will vary by lender. For example, some mortgage lenders may accept lower credit scores than others. Some may allow gift funds while others will not. 

If you get turned down by one lender, be sure to shop around. You may still be able to get a loan from someone else.

Since these loans carry a little more risk for lenders, they may need you to have a larger down payment than you would for a conventional loan. You may also end up with a higher interest rate.

Who Is a Bank Statement Loan Good For?

You may want to use a bank statement loan if you don't have a steady cash flow. They are also good if you can’t get proof of income from an employer. People who might use a bank statement loan could be:

  • Consultants
  • Freelancers
  • Small business owners
  • Doctors
  • Lawyers
  • Real estate investors and agents

In these professions, you may not be able to get a normal or FHA loan. This is because the income on your tax returns is often adjusted for deductions and business write-offs. It might not reflect the true amount of income you’re earning.

Your bank statements, however, show your full income. This can help you get a loan that you otherwise wouldn't be able to.

If you already own a home, you can also use bank statement loans to refinance your mortgage. If you’ve left the traditional workforce since buying your home but would still like to enjoy the perks of refinancing, these loans may be an option.

Pros of Bank Statement Loans
  • No tax returns, W-2s, or pay stubs needed

  • A higher debt-to-income ratio may be okay 

  • Often have high loan limits

  • Often can be used on primary residences, second homes, and investment purchases

Cons of Bank Statement Loans
  • May have higher interest rates

  • May need a larger down payment

  • Not offered by all lenders

What Are Other Options?

Keep in mind that if you work for yourself, you may still be able to get a traditional home loan. This could include a conventional or FHA mortgage.

Most lenders verify income by looking at the average of the last two years of your tax returns. If you’ve been self-employed for a while (at least two years) and your income has stayed steady or grown during that time, you may still be able to get a conventional loan.

A larger down payment and good credit can also help your chances of getting a mortgage as a self-employed person. It also helps to borrow with someone who has a high credit score.

A bigger down payment and better credit may also help you get a lower interest rate.

You may also want to work with a mortgage broker. These are pros who can help you with your loan shopping.

Brokers have access to many lenders. They may be able to point you to a loan program that fits your needs, even if you don't have a steady income.