Have you heard of a Bank Statement Mortgage? Most all mortgage loans require bank statements to verify sufficient funds to close on a transaction. A complete bank statement provides third party verification that the applicant has enough funds for a down payment, related closing costs and cash reserves all belonging to the applicant. But a bank statement loan is different and it’s the closest type of mortgage to a “stated income” loan that you can get. With a bank statement loan, income is indeed verified and debt ratios are calculated but income calculations are derived from bank statements, not pay check stubs, W2s or federal income tax returns. There is no need for the form 4506-T which is a formal request made directly to the IRS for copies of recent tax transcripts. How do such loans work?
We have four such bank statement programs, all with different degrees of verification. These four programs are:
- 12 Month Personal Bank Statement Program
- 24 Month Personal Bank Statement Program
- 12 Month Business Bank Statement Program
- 24 Month Business Bank Statement Program
These four programs use deposits listed on the bank statements as income without any need to document income in any other method such as a written verification of employment, tax transcripts or returns and no need to provide any pay stubs. And if you think about it, this program makes complete sense. When someone gets paid on the 1st and 15th of every month, those payments are typically either direct deposited or manually deposited on or around pay periods.
With the 12 month personal program, 100 percent of the deposits are used and averaged over a 12 month period. These deposits must come from outside sources and cannot include any transfers from other personal accounts. The 24 month personal program also uses 100 percent of the deposits yet averages the income over 24 months, not 12.
With the 12 month business bank statement program, qualifying income is used as the lower of what appears on a monthly net income from the most recent profit and loss statement or the income listed on the loan application. Business bank statements are used to support the income listed on the P&L and averaged over a 12 month period while the 24 month program is documented in the same fashion with 24 months of bank statements.
The applicant must provide evidence of business existence. This is typically done with a copy of a business license and all parties that are listed on the bank statement must also be on the signed mortgage application. Additional income from sources outside the business can be used but must be independently documented. At least one person on the application must be designated as self-employed or otherwise receive more than 25 percent of gross monthly income outside of an employer. There also needs to be at least two years of documented self-employment. All bank statements provided must be consecutive with no missing months.
The business bank statement programs also follow the same documentation of deposits over a 12 or 24 month period. Business income should be relatively stable from month to month yet seasonal boosts in income may also be used with proper documentation. For example, a retail store may have a boost in sales around the holidays and may be used in the overall average.
Some important details need to be explained but you’ll want to give me a call and discuss all the program parameters. Loan amounts up to $15 million and the program can be used to finance a primary residence, second home or investment property. The minimum down payment for a primary residence is 10 percent and minimum FICO scores range from as low as 620 to as high as 720. Loans are provided as a 5/1 ARM or a 7/1 ARM, fully amortized but an interest only option is also available. Interest rates will vary based upon the amount of equity in the transaction, credit scores and occupancy, among others. For condominium projects, the project must be approved and can finance either a warrantable or non-warrantable condo.
Bank statement programs are an excellent choice for those business takes advantage of various tax exemptions and deductions that are used when filing income tax returns or have income that comes from various third party sources. If you’re not sure if this program is right for you, let’s get together and talk about your options. By providing your most recent federal income tax return, personal and business, we can determine together if this special home loan program is right for you.