Bank Statement Mortgage ProgramsUse your bank deposits as income to qualify as a self employed borrower.
Bank Statement Mortgage Program
The lending industry has recently developed a bank statement mortgage program that make it easier for those self employed individuals in the workforce to qualify for a mortgage. We all know that it makes sense to deduct expenses to avoid paying taxes unnecessarily. The problem is that oftentimes once a business owner or sole proprietor has taken advantage of every write off available to them the net income that shows on their tax returns is no longer sufficient to qualify for a home that they feel can afford and desire. Bank statement mortgage programs can remedy this situation, because we completely take the tax returns out of the pictures. The borrowers income is derived from the deposits that enter either their personal bank account or their business bank account. It’s important to note that the debits, withdrawals, and deductions from the account are not accounted for, only the deposits.
What Does My Credit Score Need to Be?
Your credit score for a bank statement mortgage program will dictate two things. How much of a down payment will be required, and what your interest rate will be. The minimum credit score requirement is 600, and with a 600 credit score your minimum down payment would be 15%. With a credit score of 680 your minimum down payment would be 10%. The great think about these programs is that even though you aren’t putting down 20% you don’t have any additional mortgage insurance to pay, but with conventional financing you would need 20% down to remove any mortgage insurance requirements. So even though the rates for these programs are higher than conforming financing because you don’t have to pay mortgage insurance it puts these programs on more of an even playing field. Of course like other programs the higher your credit score the lower your interest rate will be for a bank statement mortgage program.
You Have to Be Self Employed
To utilize a bank statement mortgage program you need to be self employed. That means either you have a corporation or are a sole proprietor. You also need to have been self employed for the past 2 years. In order for us to verify that you have been self employed for the last 2 years we need to show that a business has been incorporated for that long through the state or that you have held a license of some sort within your industry. Additionally a letter from your CPA stating how long you have been self employed would suffice. Remember we are not looking at your tax returns, because we are only using the deposits in your bank account. If you have been self employed for slightly less than 2 years then its possible we could get an exception approved.
How Is My Income Calculated?
Your income is calculated in a couple different ways with a bank statement mortgage program. Typically we can only use one account when calculating income, under certain circumstances two can be used. If its a personal account that your income is flowing to we can use 100% of the deposits and we would not look at the debits. Large one time deposits or transfers would need to be sourced though. If we are using your business bank statements then typically 50% of the deposits would be used as income. We would look at a minimum of the 12 months of bank statements and average the monthly deposits. It’s possible to use 24 months though in the even that helps your income figures its advisable. In some cases we can get a better interest rate for you with 24 months of statements as well.
What Else Do I Need to Know?
Bank statement mortgage programs are a little different than our standard mortgage programs but in no way are they inferior. The truth is paying a little more for an interest rate can be cheaper than paying Uncle Sam because the savings on your tax returns might outweigh the higher rate you would pay with a bank statement program. Its a great loan program but there’s a few caveats to keep in mind. The better interest rates are going to be on 7/1 or 5/1 arms, but 30 year fixed rates are available for about .25% more in rate. You can not finance a manufactured home with the program. The minimum loan amount is $150,000 with a bank statement mortgage. Large farm properties will not be acceptable as well. With this program if you have an appraisal already that was ordered through an appraisal management company we can use it!
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