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Non- QM Loans: 12 Months Personal Bank Statement Loan

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You want to get a home mortgage. But you don’t have any W2s. What do you do? This is a situation that many self-employed people end up in. You want to purchase a home, but you can’t document your income. That’s where 12-months personal bank statement loans come in. These loans are based on the raw income you’re bringing into your bank accounts and can be much easier for a self-employed person to get.

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Why Is It Hard for the Self-Employed to Qualify for a Conventional Loan?

Conventional loans want to look at your income. For most people that’s as simple as handing over a W2 form. For self-employed individuals, it’s a little harder. Self-employed individuals may be getting income from several different sources and it can be difficult to show all their income.

Even a tax return often isn’t representative of a self-employed person’s income. First, a self-employed individual may have seen their income change dramatically in the past 12 months. Second, a self-employed individual is usually trying to reduce their taxable income as much as possible.

Take a self-employed individual who made $200,000 and put $50,000 into their SEP IRA (which they are allowed to do tax-free). Their Adjusted Gross Income will be $150,000, not $200,000, even though their $50,000 SEP IRA contribution was voluntary.

What Is a 12-Month Personal Bank Statement Loan?

A personal bank statement loan uses bank statements to add up an individual’s income and expenses rather than trying to rely upon tax returns or W2s. For a self-employed person, this is much better: all the income that they bring in will be considered.

A 12-month personal bank statement loan is going to go back 12 months of statements, to create a rough average of the amount of money that the individual makes throughout the year. There are also 24-month personal bank statement loans.

What Is a Non-QM Loan?

A personal bank statement loan is something known as a non-QM loan. Non-QM loans are non-qualified mortgages: they aren’t properly qualified to the federal government’s standards. This doesn’t make them bad loans, it just means that they’re an alternative type of lending, which can be slightly more difficult to secure. 

Non-QM loans have greater levels of flexibility because they don’t need to adhere to federal standards. But they can also have higher than average interest rates since they are higher risk loans.

How Does a Bank Statement Loan Work?

During a bank statement loan, the lender will request your bank statements from a certain period. They will then use their own internal algorithms to judge your risk. The goal is to determine your net income, which your gross income less any necessary expenses.

The bank statement loan will then be qualified based on your average income. While you can use multiple bank accounts to qualify for a bank statement loan, you do need to provide those bank statements.

Similarly, there are things called “stated income” loans. Stated income loans don’t use bank statements at all. Instead, you simply tell the lender how much you make, and they go on faith. Stated income loans are much higher risk, and they cannot be used by individuals trying to buy an owner-occupied house.

What Are the Advantages of a Bank Statement Loan?

If you take a lot of deductions against your income, a bank statement loan will review a more accurate picture of your earnings. This will allow you to qualify for a larger home, or even to qualify for a home at all. If you don’t receive W2s for your income, a bank statement loan makes it easier to prove your income. If you receive several 1099s as a business owner, a bank statement loan will ensure that you don’t miss anything.

A 12-month personal bank statement loan is a loan geared at helping self-employed individuals prove the amount that they make to their lender. If you’ve been declined for a QM loan because you could not show your income, a bank statement loan is ideal. If you’ve had periods of not being stable with your income, you can also consider a 24-month personal bank statement loan. This loan will operate just like a 12-month loan but will average your earnings over a longer period.

Many people think that they aren’t able to qualify for a loan when they haven’t explored all of their options. A bank statement loan is only one of the many alternatives, non-QM loans available to those who can’t traditionally qualify.

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