Smart borrowers know to shop around for their mortgage. Many lenders offer bank statement loans, but not all programs offer the same benefits. Knowing which one is right for you can be challenging, but it’s important to understand how to compare the terms, rates, and programs offered by each lender. The more you know, the better off you are finding the right bank statement loan program.
Banks are much more likely to ensure that you understand the program, so you are less likely to default in the future, but being knowledgeable about the subject makes the decision-making process easier and less stressful.
Comparing Bank Statement Loans
Knowing the terms is a significant part of ensuring you find the right mortgage lender. Bank statement loans are not part of the Qualified Mortgage guidelines. That being said, lenders have more leniency with bank statement loans, which means that their risk is higher. When your lender’s risk is higher, you can expect them to charge whatever they need in order to ensure that the loan is repaid.
Of course, all lenders must abide by the Ability to Repay Rule. This Rule means that the lender did the necessary work to ensure that you can afford to repay the loan. Other than that, it’s up to the lender to take care of the loan.
Understanding the terms is incredibly important when it comes to these types of loans because the requirements and guidelines will differ from that of a Qualified Mortgage.
You should know this information:
- Whether the rate is fixed or adjustable
- What the amortization period is
- The LTVs allowed
- What the rate is
Understanding these aspects of the terms will help you better understand each loan. You’ll find that every lender and their available loans have different terms.
For example, it may be difficult comparing a loan with a 30-year term with that of a 20-year term. Even if the rates are the same, these loans will have completely different terms. You also can’t compare fixed-rate or adjustable loans.
Adjustable loans are likely to increase in the future, which means that you’ll have a different payment in the long run. In terms of affording the loan, this could be a complete gamechanger.
The down payment is the sum you put down on a home before using the loan to cover the rest of the costs. It comes completely out of your own pocket in most cases. Lenders differ in how much of a down payment they require.
Some will require 24 months of bank statements and allow an 80 percent loan to value ratio. This ratio means that you’ll only have to put down around 20 percent.
However, other lenders may only require 12 months of bank statements, but will only offer an LTV of up to 70 percent. What this means is that you’ll have to put 30 percent down.
When it comes to making the decision about which loan is right for you, you must always consider the down payment. A lower down payment may be necessary depending on how much you have saved, but it will mean that you’ll pay more over the course of the loan.
Every lender will have their own guidelines regarding down payments, so it’s important to ask questions regarding their requirements so that you know whether or not you are able to take on the loan.
Another requirement of bank statement loans is the credit score. Because this program is more lenient than QM programs, the credit score requirement will vary from lender to lender. Some lenders may go as low as 680, while others will deny those with a score of less than 700. Each lender can set their own rules, so it pays to shop around until you find one that will accept your credit score.
However, as long as your credit score is in the 700s, you should not have a problem finding the right program for you. In fact, you’ll most likely have many to compare.
The best way to get a mortgage that’s right for you is to shop around. Make sure that you understand exactly what each loan entails. You may qualify for multiple loans depending on your credit score, so it’s important to not base your decision only on the fact that you qualified.
Comparing bank statement loans is more challenging than comparing traditional loans because of the varying underwriting requirements. When you have multiple lenders that your criteria meet, it’s essential to compare each program. Find the benefits that each offers to determine which is the most affordable for you now and in the future.
Also, make sure that you know your own plans for the home. If you’re only going to be living there for a short time, you may want to take a higher interest rate in exchange for the lowest possible down payment.
If you believe the home you are buying will be your forever home, consider a higher down payment for a lower interest rate so that you will pay less over the entire life of the loan.
In the end, bank statement loans offer you a great way to get a home even when you do not meet the requirements of the qualified mortgage loans.