Are you self-employed and looking to purchase a home? Have you heard of the bank statement loan? No, it’s not a loan from your bank. It’s actually a type of loan that allows self-employed individuals to get approved for a mortgage without having to provide tax returns or W2s. Let’s break down what this means for prospective homeowners.
What is a Bank Statement Loan?
A bank statement loan is an alternative way for self-employed people to get approved for a home loan without having to provide traditional forms of income proof such as tax returns or W2s. Instead, lenders look at your personal or business bank statements in order to evaluate your income. This type of loan is also referred to as a “12 month business bank statement program” because lenders usually look at 12 months worth of records, though some may require 24 months depending on the lender and your individual situation.
Benefits of a Bank Statement Loan
The main benefit of getting approved for a bank statement loan is that it offers those who are self-employed the opportunity to purchase their own home without having to jump through all the hoops associated with providing tax returns and W2s. It can also be easier and faster than other types of loans since lenders do not have to wait for these documents before making their decision on whether or not you qualify for the loan. Additionally, this type of loan does not require an extensive credit history in order for you to be approved, which can be beneficial if you have bad credit and need an alternative way to buy a house.
Drawbacks of Bank Statement Loans
While there are many benefits associated with this type of loan, there are also drawbacks that you should consider before applying. For one, interest rates tend to be higher than those associated with traditional loans due to the fact that they carry more risk since evidence about your income is based solely on bank statements instead of tax returns or W2s. Another potential drawback is that most lenders will only approve loans up to $1 million so if you are looking for something larger than that, this might not be an ideal option for you. Finally, keep in mind that most banks will only accept business accounts when evaluating your records so it may be difficult if you only have personal accounts set up.
Overall, if you are self-employed and looking for an alternative way to purchase a home without having to provide traditional forms of income proof such as tax returns or W2s, then exploring the possibility of getting approved for a bank statement loan may be worth considering. While there are some drawbacks associated with this type of loan such as higher interest rates and limited amounts offered by lenders, it can still offer prospective homeowners a viable option when they might otherwise find themselves unable to qualify using traditional methods. As always, make sure you do your research before committing so that you fully understand both the risks and rewards associated with applying!