Self-employed individuals have the opportunity to finance a new home in the form of bank statement loans. With this option, they no longer need to use tax returns. What they can do is provide the lender with a proof of income.
Anyone who can prove that they can repay what they owe can almost qualify for bank statement loans. Freelancers, entrepreneurs and small business owners are the most common types of people who apply for this type of loan.
What you need to take out a bank statement loan
Bank Statement Loans Requirements
Like other loans, a borrower needs to acquire some requirements to get approved. Here are some of the requirements you should know if you’re planning to apply for a bank statement loan:
1. A Proof of Income
This should be the first that you need to obtain. Financial institutions offer different bank statement mortgage loan programs to their clients:
- 12-Month Bank Statement – This loan would ask for statements for the last 12 months.
- 24-Month Bank Statement – This loan would ask for statements for the last 24 months.
Some institutions also offer a 1-month bank statement and would only require you to submit a recent bank statement for the last month. Find out how much you really need to know which type of loan you should apply for.
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2. Good Credit Score
A credit score as low as 500 would be enough, depending on the lender. Others require as high as 620 to qualify for bank statement loans.
As a borrower, it’s your responsibility to get a good credit score whether the financial institution requires a higher or lower credit score. But remember that the better your credit score, the better chances of getting approved for a loan.
You’ll also be given a form that you need to fill out when applying for bank statement loans. Other important requirements that you need to acquire include:
- Social security card
- Valid identification cards or a driver’s license
- Home insurance, if there is any
- Assets which will include your retirement plan or your savings
- For those with businesses, a copy of your business permit or license may be needed
Save Up for a Down Payment
An important step to buying a home is to find out how much you need to save for the down payment. This would also depend on the lender and your credit score. Typically though, downpayment range between 10 to 30 percent.
Once you are approved for the loan, the financial institution will send you all the other requirements that you need to close the deal.