This Article Is About Bank Statement Mortgage Loan Program Lending Guidelines
Real estate investors who had invested in real estate prior to the 2008 Real Estate and Mortgage Collapse may have heard of bank statement mortgage loan programs
- Bank statement mortgages were very common pre-2008 mortgage and lending era
- 12-month bank statement mortgages for self-employed borrowers with no income tax required are becoming very popular at Gustan Cho Associates
- Federal income tax returns are not required
- Only bank statement deposits are used
- 12-months bank statement deposits are averaged and that figure is the monthly income
- Withdrawals do not matter
The monthly deposits need to be similar and cannot be declining.
The Return Of The 12-Month Bank Statement Only Mortgages
Sub Prime mortgage lenders and other lenders did bank state mortgage loan program lending prior to the 2008 financial crisis:
- However, after the 2008 financial crisis, all alternative mortgage loan programs came to an abrupt halt
- Full doc mortgages where income tax returns were required became a hurdle for self-employed borrowers when trying to qualify for a mortgage
- It was mainly geared towards self employed borrowers
The average deposit over the past 12-months is averaged. That average is the monthly qualified income. Withdrawals do not matter.
Benefits Of Non-QM Mortgages
Homebuyers who are a self employed borrower can qualify for non-QM bank statement mortgages:
- borrowers earn seasonal income with a lot of unreimbursed expenses
- or other business professionals who are not a consistent wage earner and have an irregular income from their businesses
- self-employed borrowers
- 1099 wage earners
- All the above type of borrowers can now qualify for a home loan with the bank statement mortgage loan program offered by Gustan Cho Associates
In this article, we will explain how the bank statement mortgage programs at Gustan Cho Associates works.
How Does The Bank Statement Mortgage Loan Program Work?
Bank Statement Mortgage Loan Program falls in the Non-QM Loan Program .
- The Non-QM Loan Program is also called Out-Of-The-Box Mortgage Loan Program
- This is where lenders will lend on non-traditional types of residential lending where borrowers would otherwise not qualify for a mortgage
- Mortgage programs such as one day out of foreclosure, deed in lieu of foreclosure, and a short sale is now offered at Gustan Cho Associates Mortgage Group via our correspondent lending division
Non-QM Loans are portfolio loans and cannot be sold to Fannie Mae or Freddie Mac.
What Documents Are Required?
The way the Bank Statement Mortgage Loan Program works is in lieu of borrowers providing the following:
- two years of tax returns
- two years of W-2s
- most recent paycheck stubs
With the bank statement loan program for self-employed borrowers, all is required is 12 to 24 months of bank statements. Profit and Loss Statements of the borrower’s business prepared by the borrower’s accountant may or may not be required.
Bank Statement Loans For Self Employed Borrowers
The Bank Statement Mortgages has been a hit since it was launched.
- Even if the borrower were to earn his or her income part of the year, as long as the borrower has maintained bank statements for 24 months will be used
- Need to use same bank statements for 24 months which documents their deposits and income
- Bank Statement Mortgages will work in securing a self-employed borrower a mortgage loan
- There are no loan limits
There is no private mortgage insurance required.
Types Of Properties Eligible Under The Bank Statement Mortgages
Self-employed borrowers who do not declare a lot of income due to being self-employed and taking advantage of their business expenses can now qualify for a mortgage loan with NON-QM Loans.
Bank Statement Loans can be used to purchase the following properties:
- Owner-occupied Single Family Home
- Second Homes
- Investment Homes
- Two to Four Unit Residential Properties
- Non-Warrantable Condominiums
Types Of Bank Statement Mortgage Loan Program Available
There are three different types of Bank Statement Mortgage Loan Program.
- The first type of Bank Statement Loan is where self-employed borrowers will be qualified with personal and business bank statements
- It is often referred to as a Personal/Business Combined Bank Statement Mortgage Loan Program
Here is how Case Scenario # 1 works:
- A borrower is required to provide bank statements from the most recent 12 consecutive months
- The borrower is also required to provide a Profit & Loss (P&L) statement prepared by the borrower’s Certified Public Accountant, CPA or a Licensed Tax Preparer
- The expenses of the borrower’s business which is shown on the P&L must be in line and reasonable considering the borrower’s type of self-employment
- The Profit and Loss Statement, P&L, will be the primary source for information to qualify the mortgage loan borrower
- The revenue from the Profit and Loss Statement, P&L will be supported by the bank statements the mortgage loan borrower provides
- The bank statements of the borrower must reflect deposits no less than 5% of the revenue stated on the P&L
- The mortgage underwriter reserves the right to request bank statements that can exceed 12 months and many times, the mortgage loan underwriter can request bank statements for 24 consecutive months
Second Case Scenario
Here is how Case Scenario #2 of the Bank Statement Mortgage Loan Program works– You Maintain Separate Personal and Business Accounts
- No Profit and Loss Statement, P&L Statement, is required
- Only your personal bank statements will be considered to determine the eligibility of the Bank Statement Mortgage Loan Program
- The borrower provides personal bank statements from the most recent 12 consecutive months in addition to business bank statements from the most recent 3 months (in order to verify the maintenance of separate accounts)
- Annual bank deposits are averaged to determine the monthly income of the borrower using bank statements
- The mortgage underwriter reserves the right to request bank statements from addition 12 consecutive months if the borrower’s bank statement does not seem solid
If an optional Profit and Loss Statement, P&L prepared by a CPA or a Licensed Tax Preparer is provided, that will determine the borrower’s monthly income.
Processing And Underwriting Bank Statement Loans For Self Employed Borrowers
With the above case scenarios, the documents provided to the lender needs to make sense.
- It needs to support the size of the requested mortgage loan amount
- The underwriter needs to feel comfortable that the borrower has the ability to repay the mortgage loan
- Any irregularities and/or inconsistencies will prompt the mortgage loan underwriter for additional documents to be provided by the borrowers and that may be tax returns or other supporting facts
Here is how Case Scenario 3 of the Bank Statement Mortgage Loan Program Works– Borrowers Will Only Be Required To Provide Business Bank Statements to Qualify for the Bank Statement Mortgage Loan Program
- Borrower to provide business bank statements from the most recent 12 consecutive months
- Borrower to provide a Profit & Loss Statement, P and L Statement, prepared by a Certified Public Accountant, CPA or a Licensed Tax Preparer
- The business bank statements of Borrower must reflect deposits no less than 5% of the revenue stated on their business Profit and Loss Statement, the P&L
Lending Guidelines On Bank Statement Mortgage Loan Program
The Bank Statement Mortgage Loan Program is a fairly new lending program that is becoming increasingly popular.
- It is mainly for self-employed borrowers who take advantage of the loopholes with writing off business expenses
- It helps these borrowers limit their tax liabilities
- However, it hurts them in qualifying for mortgage loans
- Lenders who originate and fund Bank Statement Mortgage Loan Programs are looking for strong credit profile borrowers
- Will carefully look at borrower’s bank statements for overdrafts and non-sufficient funds on their bank statements and history of their bank statements
- Overdraft Protection is not viewed favorably by mortgage underwriters
- One or two overdrafts in a calendar year may not be a deal killer
- However, any more overdrafts beyond three may not be permitted
- Loan officers and mortgage processors should carefully analyze and review overdrafts and non-sufficient funds on both personal and business bank statements prior to submitting the loan file into underwriting
Homebuyers who are self-employed borrowers with irregular or inconsistent income and are interested in qualifying for Bank Statement Mortgage Loan Program, please contact us at Gustan Cho Associates at Loan Cabin Inc. 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays.