If you are in the market for a home, you are likely in the market for a mortgage loan. For some people, a traditional mortgage loan is out of the question. If you have applied for a traditional loan but been denied due to credit issues or inconsistent income, bank statement mortgage loans might be your answer. Below is a little information about these loans about what you should know.
What are Bank Statement Mortgage Loans?
Bank statement loans are loans that do not require W2s, tax returns, or other traditional proofs of income to apply. They were created because the financial industry realized that not everyone receives a regular check stub.
In fact, there are innumerable amounts of business owners, freelancers, seasonal farmworkers, and other inconsistent income fields. However, just because they do not receive a regular income does not mean that they do not need financial assistance. Bank statement loans cater to these unique situations.
Since bank statement loans are not traditional loans, it makes sense that the requirements for them are not traditional either. Often, you will find that a lender requires different documentation and guidelines. You will likely find these differences in proof of income, mortgage rates, and credit scores.
The majority of bank statement loan applicants have non-traditional income, so showing paycheck stubs is often not possible. Instead, lenders will look at 12 – 24 months of bank statements to determine your income and ability to pay. Insufficient funds will not necessarily disqualify you if you are not consistently in the negative.
You might also find bank statement mortgage rates are .500% to 1.000% higher than traditional loans. Also, there are some that approve credit scores as low as 500. While these are more attainable for people, they can also be more expensive.
How Income is Determined
You are likely wondering how your income is determined if it is not consistent. With these loans, it is more about the average. Your income will usually be added up for a year and then divided by 12 to get your gross monthly income.
Types of Bank Statement Mortgage Loans
There are two basic types of bank statement loans: a fixed-rate mortgage and an interest-only adjustable-rate mortgage (ARM). A fixed-rate mortgage has fixed interest for the entire loan term. As long as payments are made on time, the mortgage and interest will be completely paid off at the end of the term.
An adjustable-rate mortgage has a fixed interest rate for a set time, often 5 – 10 years. After that term, interest will likely fluctuate according to current market rates. This will likely affect how long you will be paying on your mortgage.
As you can see, these mortgage loans are quite different from traditional loans. If you feel you can meet the requirements mentioned above, come by Homex Mortgage or give us a call. If you have any questions, comment below. We are standing by to help you find the mortgage you need.