Bank statement loans: Mortgage lenders and requirements

September 23, 2022 - 9 min read

Where can I find a bank statement loan?

The home loan process looks a little different when you have self-employed income. Traditional home loans are an option, but some self-employed borrowers prefer bank statement loans, which calculate income based on bank statements rather than tax returns.

This can be a good way to get approved for a loan if you have a lot of write-offs and your income looks lower than it really is. But not all lenders offer bank statement mortgages, and it can be harder to find a low mortgage rate.

Here’s what you should know about bank statement loans before you apply and a few tips to find the best deal on your mortgage.

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How to find bank statement loans

Not all lenders offer a bank statement loan program. So your options might be narrower than someone applying for a traditional mortgage or refinance.

Below, we list a few mortgage lenders that explicitly offer bank statement loans. However, you shouldn’t limit your search to these companies. Other lenders might be perfectly happy to approve loan applications based on bank statements even if they don’t advertise “bank statement loans” or “non-QM loans” on their websites.

If there’s a certain mortgage lender you like, it’s worth reaching out to ask about its lending requirements. You’re likely to have more luck with a non-bank mortgage lender or a credit union. Big-name banks are typically less keen to offer non-QM products.

Keep in mind that mortgage rates tend to be higher on bank statement loans than on traditional mortgage loans. But just because you’re self-employed, doesn’t mean you can’t shop around and find a good mortgage deal like everyone else. The wider you cast your net, the more options you’ll have for comparing loan terms and interest rates.

Bank statement loan lenders

If you’re already eyeing some mortgage lenders, ask whether they can approve you based on your bank statements. As we said, not all lenders advertise the fact that this is an option.

If you’re not sure where to start looking, we’ve compiled a list of lenders that explicitly state they’ll consider bank statement loans. You can also reach out to mortgage brokers in your area who have experience finding bank statement loan programs for self-employed buyers. Your real estate agent is another good resource to help you find a mortgage broker or lender.

Each bank statement loan lender is listed next to its Better Business Bureau (BBB) rating, which run from F to A+.

Lenders are provided for informational purposes only. The Mortgage Reports has not reviewed or vetted these bank statement loan lenders.

If none of those is able to help you, cast your net wider. There are plenty of other bank statement loan lenders that didn’t make our list. As always, you should compare at least three to five loan offers to make sure you’re getting the best terms and lowest mortgage interest rate available to you.

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How to compare bank statement loan lenders

Understand that this is not a list of the best bank statement loan lenders. Rather, it’s a list of lenders that definitely offer bank statement loans — a place to get started. It’s up to you to vet the companies that make your shortlist.

You should compare interest rates and fees as well as customer reviews. Run internet searches for regulator actions and customer reviews to get a pulse on how reputable a lender is. Federal regulator the Consumer Financial Protection Bureau (CFPB) also maintains a consumer complaint database that you can search by company name to see if any official complaints have been filed.

Note that most companies have at least a few complaints, so this shouldn’t be a deal-breaker. But look at the reasons for the complaints to see if there are serious red flags.

How do bank statement loans work?

Roughly 10 million Americans are self-employed, including freelancers and contract workers, according to a 2022 data set from the U.S. Bureau of Labor Statistics. So it’s no surprise that there are special mortgage programs to help self-employed people buy a home or refinance their current home.

Bank statement loans are a popular option. These don’t require W2s or previous years’ tax returns. Instead, underwriters verify your monthly income by looking at deposits on your recent bank statements. You’ll typically need to provide the past 12-24 months of bank statements along with other supporting documentation.

Pros of bank statement loans

Many business owners, contract workers, and others in the gig economy minimize their tax liabilities by maximizing their deductibles for business expenses. Unfortunately, these write-offs can make your income look much smaller than it really is on tax documents. When it comes to qualifying for a mortgage, that means you could end up with a lower loan amount due to your ‘smaller’ income.

For example:

  • $100,000 gross income
  • $60,000 in claimed expenses on tax returns
  • $40,000 taxable income: The only portion usable for mortgage qualifying

Some self-employed mortgage borrowers use bank statement loans to get around this obstacle by counting most or all their income while ignoring expenses.

Bank statement loans come in several flavors. We found bank statement loan lenders offering:

  • 30-year fixed-rate mortgages
  • 5/1 adjustable-rate mortgages (ARMs)
  • 7/1 and 10/1 ARMs
  • Jumbo loans with loan limits in the millions

As an added benefit, many bank statement loans require no mortgage insurance. Since non-QM loans can’t be sold to Fannie Mae or Freddie Mac, lenders aren’t required to charge the (borrower-paid) private mortgage insurance that so many home buyers try to avoid.

Cons of bank statement loans

The biggest downside to a bank statement loan is that you’ll typically pay a higher interest rate than you would with a standard conforming mortgage.

  • Higher interest rates: Interest rates are typically higher on these mortgages. So you should expect to have to shop around even more than usual for a good deal
  • Unregulated loans: Non-QM loans aren’t regulated like other mortgage programs. That means each lender sets its own criteria or “underwriting standards” for approving these loans

Don’t be put off if you’re turned down by one or more lenders. Keep looking, and you may well find one that’s eager to help you. Some experts recommend that you find at least five self-employed mortgage lenders for your shortlist and then compare their offers side by side.

Types of bank statement loan programs

Availability and eligibility of bank statement mortgages will vary by provider, but here are some common examples.

  • Profit and loss statement loans: Typically 12 months of P&L statements are needed
  • Personal bank statement loans: Generally requires 12 to 24 months of statements from personal accounts. Up to 100% of deposits can be counted toward income
  • Business bank statement loans: Often up to 50% of deposits counted as income. Again, 12 to 24 months of business banks statements are commonly required
  • 1099 income loans: Self-employed borrowers who are 1099 workers may be able to qualify without any need for tax returns
  • Three-month bank statement loans: Qualifying applicants can get approved with only three months of statements, provided the bank accounts have a positive balance. Your CPA may need to provide an official letter

Most bank statement loan lenders only underwrite mortgages for single-family primary residences. But a few may also finance second homes, multi-unit homes, and investment properties.

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What is a non-qualified mortgage?

Bank statement loans are a type of “non-qualified mortgage” or “non-QM loan.” Non-QM means a loan doesn’t meet the conforming mortgage standards set by Fannie Mae and Freddie Mac. Since bank statement loans do not use traditional income verification, they fall into this category.

Non-qualified mortgages are less regulated than most other mortgage loan programs. So you won’t get some of the consumer protections that apply to other loan types. That means you need to make sure the lender you choose is reputable and that you fully understand the mortgage agreement you sign.

In addition, non-QM loans have higher interest rates than conforming mortgage loans. That means self-employed borrowers using bank statement loans will typically pay more interest than self-employed borrowers using a conventional mortgage or government-backed loan.

If you’re in any doubt over any issue, keep looking or seek professional advice. Remember, a home loan agreement is not binding until you sign the final closing papers. So if anything seems amiss at any point in the mortgage process, you can always walk away.

Do you need a bank statement mortgage?

As a self-employed borrower, you’re not required to use a bank statement mortgage. You have the option to apply for mainstream loan programs just like everyone else, including conventional, FHA, VA, and USDA loans.

These major loan programs can be easier to qualify for and typically offer lower rates than non-QM mortgages. However, you’ll have to verify income using tax returns rather than bank statements. This could reduce your qualifying income since you have to use your after-expenses income for the year.

Think about your home buying or refinancing goals: Do you want the lowest rate? The biggest loan amount? The cheapest monthly payment? Knowing your goals will help you compare options and find the best loan program for you.

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Bank statement mortgage requirements

Because these are non-qualified mortgages, every lender gets to make up its own rules. And sometimes a lender will tailor the rules it applies to the applicant.

For example, a lender may normally ask for only 12 months of business bank statements. But, if you’re borderline in some way (perhaps you have a low credit score), it may ask you for statements going back 24 months. Others want two years of bank statements for all applications.

Furthermore, in lieu of pay stubs, lenders will likely want to verify the cash flow from all of an applicant’s bank accounts, including personal accounts.

The following common requirements are just a rough guide of what you might need to qualify as a self-employed mortgage borrower:

  • Bank statements: Often both business and personal bank statements for the past 12 or 24 months
  • A worthwhile down payment: Often 10% of the purchase price or more
  • Cash reserves: Enough savings or quickly accessible assets to cover several months of mortgage payments. Expect to have to document these
  • A decent credit score and clean credit report: Some lenders will approve FICO scores as low as 580. But you’ll likely need a score of 620 or higher. And remember, the higher your credit score is, the lower your rate will likely be
  • A debt-to-income ratio (DTI) below 55%: Many non-QM mortgage lenders have more lenient DTI requirements than those doing conforming loans
  • A profit & loss statement (P&L): Typically for your business’s last 12 months of trading, prepared by your licensed tax professional. Most often required if you mix your personal accounts and professional finances
  • A business license: Only if one is required in your line of work

You will also need a letter from your accountant or licensed tax professional that confirms that you file your taxes in an appropriate self-employed category. They may also have to confirm that your cash-out deductibles are in order.

Bank statement loan mortgage rates

Bank statement loan rates are higher than traditional mortgage rates because non-QM loans are considered a bigger risk.

Every lender assesses risk in its own way. So it’s hard to come up with a helpful average for how much higher bank statement rates really are. But when we sampled a few bank statement loans on the day this was written, we found a number quoting rates of around 6.62% to 8.25% for a 30-year fixed-rate mortgage (FRM). By comparison, Freddie Mac’s average rate was 5.89% for mainstream 30-year FRMs on that same day. Come bank statement mortgage rates were nearly 3% higher.

That’s not to say you can’t find a good deal. But it should underscore the importance of shopping around for your best offer. You might see a wide variety in the rates you’re offered, and you want to be sure you’re getting the most affordable loan you can.

How to choose the best bank statement loan lender for you

It’s always important to shop for your best mortgage rate. And that’s doubly true when shopping for a bank statement loan because rates and terms vary so much from one lender to the next.

Borrowers can easily save thousands or tens of thousands of dollars over the lifetime of their loans by comparing quotes from several lenders. These quotes come in the form of “Loan Estimates.” And they’re all in the same format. So they’re very easy to compare side by side.

You’re obviously looking for a low mortgage rate. But don’t forget to also compare the following information, which will be on every quote:

  • Annual percentage rate (APR): This is a better guide to the actual cost of a loan than a raw mortgage rate. It includes the total loan cost spread over the life of your mortgage
  • Estimated closing costs: How much you’ll pay in lender and third-party fees
  • Estimated cash to close: The amount you’ll need on closing day, including down payment, closing costs, and any other liabilities
  • The total amount you'll have paid after five years: A good way to compare the initial cost of two different loans
  • Principal paid after five years: This shows you how much of your debt will actually be paid off after five years. It’s a key indicator of value for money

This is vital stuff. It’s your opportunity to select the loan that suits you best.

Remember that you’re likely to see a wider range of loan terms, interest rates, and types of loans from bank statement mortgage lenders. So it’s really in your own interest to spend some time shopping around.

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Peter Warden
Authored By: Peter Warden
The Mortgage Reports Editor
Peter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.