Bank Statement Loans: Making Self-Employment Work in Your Favor

Being self-employed has its perks—flexible schedules, the ability to be your own boss, and the chance to build something from the ground up. But when it comes to securing a mortgage, being your own boss can feel like a roadblock. Traditional lenders often rely on W-2s, pay stubs, and tax returns to qualify borrowers, and as a self-employed individual, you might not have the typical documentation to show your income.

That’s where bank statement loans come in. These loans are specifically designed to help self-employed borrowers—like you—get the financing they need to purchase or refinance a home without relying on conventional documentation. Let’s break down how bank statement loans can work in your favor and help you unlock your path to homeownership.

What Are Bank Statement Loans?

Bank statement loans are a type of Non-QM (Non-Qualified Mortgage) loan that allows borrowers to qualify based on their actual bank statements rather than tax returns or W-2 forms. These loans are ideal for self-employed individuals, freelancers, business owners, or anyone who has irregular income that doesn’t fit the traditional mold.

Instead of relying on tax returns, which might not fully reflect your income due to business write-offs or deductions, bank statement loans allow lenders to look directly at your bank deposits over a period of time—typically the last 12 to 24 months. If your deposits are consistent and show a solid cash flow, you could be a strong candidate for this type of loan.

Why Bank Statement Loans Work for Self-Employed Borrowers

Self-employed individuals often face hurdles when applying for traditional mortgages. For example, if you write off a lot of business expenses, your taxable income might appear lower than it actually is, making it harder to qualify for a loan. Bank statement loans eliminate this challenge by allowing lenders to focus on your actual cash flow—what you deposit into your bank account—rather than what’s on paper.

Here’s why bank statement loans are a great solution for self-employed buyers:

No Need for Tax Returns

Most traditional mortgage options require two years of tax returns to prove your income. But for self-employed individuals, tax returns often don’t paint an accurate picture of how much money you’re actually making. With bank statement loans, you don’t have to worry about your tax returns showing a lower income due to business deductions. The lender will look at your deposits, giving them a clearer and more accurate picture of your income.

Perfect for Freelancers, Contractors, and Small Business Owners

If you’re a business owner, freelancer, or have a varied income, it can be tough to show a consistent income on paper. Bank statement loans give you the flexibility to prove your income through your actual bank deposits, regardless of how your income comes in or fluctuates from month to month.

For example, if your business is seasonal or you have months with higher income and months with lower income, the bank statement loan allows lenders to see the bigger picture over time instead of basing their decision on a single paycheck or tax return.

Helps You Avoid the Red Tape of Traditional Mortgages

Traditional mortgage approval processes can feel like jumping through hoops. If your financials don’t match the exact criteria, it can be frustrating, especially for self-employed borrowers who don’t fit the typical mold. Bank statement loans streamline the process by focusing on your bank statements as proof of income. It’s less paperwork and more opportunity for those who may have been overlooked in traditional lending systems.

Flexibility with Down Payments and Credit Scores

Unlike traditional loans, bank statement loans may offer more flexibility in terms of down payments and credit score requirements. While each lender is different, these loans can sometimes be more lenient, giving you the chance to secure a loan with a lower down payment or slightly less-than-perfect credit. For self-employed buyers who have strong cash flow but may have had a few credit bumps along the way, this flexibility is a huge advantage.

How to Qualify for a Bank Statement Loan

Qualifying for a bank statement loan is a little different from traditional loans, but it’s still entirely possible if you meet the right criteria. Here’s what lenders typically look for:

• Consistent Bank Deposits
  Lenders will examine your bank statements from the past 12 to 24 months. They’re looking for consistency in your deposits, as this shows you have a reliable source of income. The more stable your deposits, the stronger your application will be.
• Sufficient Cash Flow
  Your bank statement loan will be based on your average monthly deposits, so lenders want to see that you’re bringing in enough money to cover your mortgage payments. They’ll calculate your income based on these deposits, so make sure your business and personal accounts reflect healthy cash flow.
• A Solid Credit Score
  While bank statement loans are more flexible than traditional loans, having a solid credit score still matters. Lenders will look at your credit history to gauge your ability to manage debt. While it doesn’t have to be perfect, a higher credit score will help you secure better terms.
• Proof of Self-Employment
  As a self-employed borrower, you’ll need to provide proof of your business’s existence and how long you’ve been in operation. This might include business licenses, contracts, or even client invoices to show the longevity and stability of your business.

The Bottom Line: Making Self-Employment Work for You

If you’re self-employed and struggling to secure traditional financing, a bank statement loan could be your ticket to homeownership. These loans allow you to qualify based on your actual bank deposits, making it easier to prove your income without relying on tax returns or W-2s. With more flexibility in terms of documentation and qualification, bank statement loans give self-employed borrowers the opportunity to get into the home they deserve.

At RCG Mortgage, we understand the unique challenges that come with self-employment, and we’re here to help you explore all your mortgage options. If you think a bank statement loan could be the right fit for your situation, reach out today to get started.