Bank statement loans allow borrowers to utilize their bank statements instead of traditional income verification methods, such as W-2s or tax returns. Here’s how the process typically works:
Providing Bank Statements: When applying for a bank statement home loan, the borrower must provide their bank statements for the previous 12-24 months. These statements will be used to determine the borrower’s average monthly deposits and expenses, which will be used to calculate their income.
Income Calculation: The lender will calculate the borrower’s income based on their average monthly deposits. This is typically done by adding up the total deposits for the specified time period and dividing by the number of months. This average monthly deposit amount will then be used to determine the borrower’s income for the loan application.
Expense Analysis: In addition to calculating the borrower’s income, the lender will also review their average monthly expenses to determine their ability to repay the loan. This includes expenses such as rent or mortgage payments, utilities, and other regular bills.
Qualification Requirements: To qualify for a bank statement mortgage loan, borrowers may be required to have a higher credit score or provide a larger down payment than for traditional loans. This is because bank statement mortgages are considered riskier for lenders since they rely on bank statements rather than traditional income documentation.