Bank statement loans have requirements just like any other loan. Just because they are an alternative documentation loan does not mean that there are not strict requirements you must adhere to in order to get approved. Aside from the general fact that you need to have decent credit, stable income verified on your bank statements, and a manageable debt ratio, you also need to have the right bank accounts in order to use them for qualification purposes.
Typically, any type of personal bank account is acceptable. This includes checking and savings accounts. The one thing that banks look for in personal accounts is regular deposits from the same source. Because you are likely self-employed or work on a commission basis, the amount does not have to be as consistent as the timing of the deposits. For example, if you only have deposits occurring every other month or sporadically throughout the year, it will not be able to count as income. On the other hand, if you have regular deposits from XYZ Company in your account on a weekly, biweekly, or monthly basis, it will likely be able to be used.
The lender will take an average of the deposits from the particular company that provides your income. If you have any deposits that are significantly larger than the standard, you will have to explain it if you want it to be used in your average. For example, if you received a large bonus from your employer if you work on commission or you received a large payment from a client if you are self-employed, you can explain the amount and even provide proof of where it came from. What the lender does not want to happen is you receiving money from another person that is just helping you bulk up your account to make you look better for qualifying purposes. You have to be able to prove that the money belongs to you and is not a loan from someone else.
You might be able to use your business bank accounts on bank statement loans, but there are certain stipulations that you must meet:
- You must own 100 percent of the business. If you have a partner or a group of other owners, the money is not 100 percent yours and cannot be used for qualification purposes.
- You must be able to document your business expenses for your business as they will have to be deducted from the income if they are not shown on the bank statements themselves.
- You will have to provide proof of receipt of income if there are any large deposits, just as you would have to do with a personal account. The bank needs to make sure that you are not bulking up the account just to make yourself look better or qualification purposes.
Watching the Trends
Every bank, regardless of the type of bank statement loans programs they have available, wants to see a trend in your bank accounts, whether personal or business. They want to see consistency in the deposits and obvious payments for expenses. If these things are not easily detected in your bank accounts, you will have to provide plenty of explanations in writing to help the bank understand your situation. This is especially true if you own your own business or if you are in a unique employment situation. Bank statements can tell various stories, but they are not always what they seem, which is why letting the bank know exactly how your income and employment operate can help your situation.
Bank statement loans provide a valid way for people with irregular income to obtain a home loan. They are much more readily available today than in years past and they are easy to qualify for as long as you properly prepare. Your lender will likely need at least 2 years’ worth of bank statements, so make sure you have them handy when you apply. If your business is not quite 2 years old yet, you might be able to supplement the missing statements with proof of prior employment in the same field, depending on the lender you choose.