Bank Statement loans, in plain words.
A Bank Statement loan is a home loan that documents your income from the deposits on your bank statements over time, in place of tax returns, W-2s or pay stubs. OriginPoint describes its Bank Statement loans as for self-employed borrowers. This page explains how the review works, who commonly looks at one and what to weigh. It quotes no rates.
Sam Batayneh is a mortgage loan originator (NMLS 332474) and VP of Mortgage Lending at OriginPoint (NMLS 1598647). Sam has originated mortgages since 2004 and lends in all of California. OriginPoint lists Bank Statement loans among its loan options. See also mortgages for self-employed borrowers.
What is a bank statement loan?
A home loan where the lender works out your income from your bank deposits, not from your tax returns. It is written for people who work for themselves.
Most home loans prove income with pay stubs and W-2s, or with tax returns when you work for yourself. That works well when the tax return shows what you earn. For many self-employed people it does not. A business writes off expenses, income moves between years, and the figure at the bottom of the return can be much smaller than the money that came in.
A Bank Statement loan reads a different record. The lender collects your statements for a period it sets, adds up the deposits, and works out a monthly income from them. OriginPoint’s name for its program in this area is OriginPoint Portfolio | Self-Employed, which looks at business cash flow or 1099s instead of tax returns.
Once it closes, the loan is an ordinary mortgage. You make a monthly payment, the home secures the loan, and the lender still has to be satisfied that you can repay it. What changes is the evidence, not the obligation.
Loans that document income this way are commonly called non-QM loans in the mortgage industry, short for non-qualified mortgage. That is a general industry term, not a program name. Bank Statement loans on the Loan options page.
Who commonly looks at a bank statement loan?
People who work for themselves and whose tax returns do not show what they earn. These are common situations, not recommendations.
Business owners and contractors
A business owner, a partner or an independent contractor whose write-offs make the taxable income small. The deposits show the money the business brings in.
How lenders read self-employed incomeProject and royalty income
Actors, writers, musicians and creators are often paid through their own company or by many payers, in uneven amounts. Statements show the pattern across a year or more.
How 1099 and royalty income is countedEndorsements and side businesses
A playing contract is usually read from the contract itself. Endorsement, appearance and business income that arrives outside a paycheck is where deposits can help.
How contract income is countedWhen tax returns do show the income, a conventional or jumbo loan is the usual starting point, and Sam can go through both with you. General education only, not advice about which loan to choose.
How does a lender read income from bank statements?
By adding up the deposits over the period the lender sets, taking out what is not income, and allowing for what the business spends. Each lender has its own method.
The statements
Personal statements, business statements or both, for a period the lender sets. Every page of every month is read, so gaps and missing pages slow a file down.
The deposits
The lender adds up what came in. Transfers between your own accounts, loan proceeds, refunds and one-off gifts are usually taken out, because they are not income.
Business expenses
Money that comes into a business account is not all yours to keep. Lenders allow for expenses, either with a set share for the kind of business or from a profit and loss statement, often prepared by a CPA.
The average
What is left is averaged over the months to give a monthly income. A steady or rising line reads more easily than a falling one, and a large swing usually brings a question.
The rest of the file
Savings after closing, credit history, the down payment and the appraisal are reviewed as on any other home loan.
What should you weigh before choosing a bank statement loan?
Mainly the terms, and whether your tax returns could support a loan instead. Four things to go through with Sam.
The terms can differ
A Bank Statement loan has its own rules and terms, and it is not right for everyone. Lenders set the terms of these loans one by one, so ask Sam to lay them beside a conventional or jumbo loan.
Tax returns may work too
If your recent tax returns show enough income, a loan documented the traditional way is the usual starting point. It is worth checking before you choose.
Deposits have to be explained
Large or unusual deposits bring questions. Keeping business money and personal money in separate accounts makes the statements much easier to read.
The test is still repayment
Whatever the papers, the lender has to be satisfied that you can repay the loan. A program that reads other papers does not skip that step.
What do lenders usually look at on a bank statement loan?
The statements, proof that the business exists, savings, credit and the home. This is a general list, not OriginPoint’s requirements.
- Bank statements. Personal or business statements, covering a period the lender sets. Have every page, including the blank ones.
- Your business. Something that shows you are self-employed and for how long, such as a business license or a letter from your CPA.
- Reserves. The savings you will still have after the down payment and closing costs are paid.
- Assets. Recent statements for the accounts the down payment comes from. A large recent deposit usually needs papers that show its source.
- Credit. Your credit history, and your monthly debts measured against the income worked out from the deposits.
- The home. An appraisal, and how you will use the home: a main home, a second home or a rental.
How does a bank statement loan fit with jumbo loans and other programs?
It is one way to document income. The loan amount is a separate question: a loan above the county limit is a jumbo loan, whatever papers are used.
Program names are OriginPoint’s. Which one fits depends on your own file, and naming a program here is not a promise that a loan will be approved. OriginPoint publishes its own conditions and disclosures for each program, and those apply in full: ask Sam for them.
Plain answers about bank statement loans.
What is a bank statement loan?
Who uses bank statement loans?
Do you need tax returns for a bank statement loan?
Can a bank statement loan be a jumbo loan?
Is a bank statement loan easier to get than a regular loan?
General education only. Each lender sets its own rules, and they change. Nothing here is a promise that a loan will be approved or of any terms. This is not tax, legal or investment advice: for those questions, ask your own CPA, attorney or business manager.
Paid through your own business?
Tell Sam how the money comes in. Sam will show you which papers a lender would read, and which loans they fit.