What is a Bank Statement Loan?

A bank statement loan, sometimes also known as a self-employed mortgage or alternative income verification loan, assesses your loan eligibility using bank statements instead of tax documents. This option is particularly beneficial for freelancers, small business owners, seasonal workers, or anyone whose income fluctuates or isn't well represented by tax returns. It may also be helpful for joint borrowers when one of the income sources is non-traditional.

How Do Bank Statement Loans Work?

Unlike conventional mortgages that rely heavily on W-2 forms and tax returns, bank statement loans focus on your bank statements to determine your income. Lenders typically look at one to two years of personal or business bank statements to calculate your average monthly income. Because a bank statement shows monthly and yearly averages and expenses, this approach allows for a more accurate representation of your financial situation. It may help you qualify for a larger loan than traditional methods allow.

What are the Requirements for a Bank Statement Loan?

While specific requirements can vary between lenders, there are standard criteria you'll need to meet to qualify for a Bank Statement Loan in Colorado:

Credit Score:  Most lenders will require a minimum credit score, typically around 600 to 620, though, like other loan types, a higher score may improve your terms.

Income Verification:  Lenders are looking for a history of stable income. This can be demonstrated through consistent deposits into your bank account over a specified period, usually around 12 to 24 months. You must provide the requested personal or business bank statements to demonstrate your income stability and ability to repay the loan.

Down Payment:  You can expect to make a larger down payment than on conventional loans. Typically, down payments range from 10% to 20% of the purchase price.

Debt-to-Income Ratio:  Lenders will evaluate your debt-to-income (DTI) ratio, which compares your monthly debt payments to your gross monthly income. A lower ratio typically strengthens your application.

Reserve Requirements:  Some lenders may require you to have reserves equivalent to several months' worth of mortgage payments in savings. Cash reserves essentially act as a cushion in the case of unforeseen circumstances. 

Business Documentation: If you are self-employed or a business owner, be prepared to provide additional documentation such as business licenses, profit and loss statements, tax filings, and potentially even CPA-prepared financial statements.

Bank statement loans in Colorado offer a viable path to homeownership for individuals whose income isn't easily defined by traditional measures. Lenders can provide loans that reflect your financial situation by focusing on your bank statements. If you are self-employed or have non-standard income streams, exploring bank statement loans could be your gateway to securing a mortgage that fits your unique circumstances. Whether you're ready to buy a home or simply researching your options, understanding bank statement loans and their requirements can empower you to make informed decisions about your financial future in Colorado. To learn more about bank statement loans or to find the right mortgage loan for your situation, contact US Mortgages today - an experienced mortgage advisor is ready to assist you!