Bank Statement Loans Explained: Part 2 | Who Qualifies

If you're self-employed, getting approved for a mortgage takes more than just owning a business. In this video, we break down how lenders analyze 12–24 months of business bank statements, what they're looking for in your deposits, why consistency matters, and the red flags that can delay or derail an approval. We also cover credit score requirements, down payment expectations, debt-to-income ratios, reserve requirements, and how large deposits or insufficient funds can impact your loan. If you're a business owner preparing to buy a home or investment property, this video will help you understand what lenders evaluate and how to put yourself in the best position for approval.

Transcript

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Hey everyone. Welcome back to All Things Home Loans, Credit, and Real Estate. I am your host, Deb, the mortgage queen. So let's start learning. Just because you're self-employed isn't an automatic approval. There are some things that we have to do. Number one, we're going to analyze those bank statements. We have one program that goes 12 months, one program that goes 24 months of all the pages of your bank statement for your business bank account. We have a personal account also we can use. There's a little bit of an asterisk next to that. We'll get into that in a different episode. But we analyze those deposits to make sure that they make sense. So let's walk through this just a little bit. If I'm a solar sales guy, if I'm a pest control guy, more than likely all of my income is going to come in in a certain window of time. If I'm a contractor, for instance, I probably am not going to have a ton of really large deposits in the winter months. Maybe that's just your time that you take off. Those things can all be explained. But if you are doing something, say you're a sheet rocker, sheetrockers usually work year-round because they're inside the warm house, the warm commercial building. They really shouldn't have a down size downtime season-wise, maybe around Christmas and Thanksgiving holidays, but really they should stay pretty consistent. We look at those deposits to make sure that they are staying consistent. Are they declining? Are they making sense as to what you're getting? Are you getting $30,000 one month, zero one month, $5,000, $2,000 one month? Where did that 30,000 come from? And we might have to explain it. That it may be that simple. Maybe it's loaned money. Is it really income? So there are some analyzation tools that we have for making sure that those deposits are gonna be able to be used. We have to be able to show that your business is active and operating. And we go to the Secretary of State and say, hey, is ABC business open and operating? Yeah. But we might have to have recent invoices or recent receipts of something showing that you're still doing work right now. They don't want to do a loan on a company that's sinking. They don't want to do a loan on somebody that's like, oh my gosh, I've got to have a cash out refinance and I'm just gonna pull all the money out of my house. I really don't have any business operations and you're a sinking ship. They don't want any of that. And neither do you. I mean, that puts us back into the 08 crap. So if you don't know what was going on with the 08, Google that and pay attention to what they're saying in there. We want to put some safety nets around this program for sure. Credit credit score requirements are a must. You don't get to get a nasty credit score and this program. You have to really have decent credit scores. It's just the fact of the matter. Down payments are a requirement. We have to have down payment. On a primary residence, 10% down is pretty standard depending on where your credit score is at. On investment property, 20% is pretty standard on that part as well. But the thing about this down payment piece is it's not that it doesn't matter where it comes from. It does matter where it comes from, but they're just a little bit more lenient on certain things. So it don't panic when you're like, oh my gosh, I'd love to get into investment property, but 20% down, are you freaking kidding me? I can't do 20% down. All right, well, where are you at with your primary residence? Do you have equity in your primary residence? We'll tackle that later, too. But there's maybe more liquid asset you've got by leveraging some of your assets. And if you check out any of the big guys who are the most wealthy, most of the time they've leveraged a lot of their assets to get more assets. It's just a fact. Real estate is leveraged all the time to grow a real estate portfolio. But side note, we still qualify your debt ratio. We still have to make sure that you have enough income coming into those bank statements to be able to qualify and pay the debts that are on your credit report and the new mortgage and your current housing. If you're getting an investment property, we have to make sure you qualify. That debt ratio allows a pretty high debt ratio, considering, but it's definitely something that we have to evaluate. Assets and reserves, 401ks, money in your checking account, money in your savings account, money in some sort of a Roth IRA, CDs, stocks, any of that stuff. We still have to have reserves. We still have to have your fallback money. You still have to have proof that, hey, if I'm buying an investment property, I have money in my savings account that I can pull from if for some reason my tenant leaves, or I have to not have it rented out for a period of time because I have to do home repairs. There is a reserve requirement on these as well. But once again, don't unqualify yourself. Let's look at what you've got. You might be surprised at, hey, I've got a little in my checking, I got a little bit in my savings, I've got a little bit in my business account, I got a little bit over here in this old 401k, I've done over here in the stocks, I've done over here in the CDs. Add it all together. Is there going to be enough? So don't disqualify yourself. That's stupid. Don't do that. What we look is stability, consistency, and can you pay it back? That's really what it is. If your income's stable, your business exists, you look like you're consistently working in your field and doing a good job, and you appear on paper that you're gonna pay this loan back, that's all we got to do. We just have to make sure that you have the ability to repay that loan. There are some red flags that we have to be careful with. Uh, the red flags will be declining deposits. So if we look over the last 12 months and you've got 18,000 and then 7,000, then 12,000, then 5,000, then 8,000, then 2,000, then 1,000, then 3,000, then 1,000, and we never hit that big number again. That could be potentially a declining deposit issue, and we might have to tackle that a different way. Also, we're looking at insufficient funds. Are you depositing money and having money clear out of your account and it's out of order? You're having negative balances on your account, you're having the bank that's actually going to cover some of your balance checks. I guess what it used to be called back in the early 90s, that dates me a little bit, but uh you have automatic payments coming out and it's throwing your account into the negative. And so you have insufficient funds charged of $25. That stuff's bad. You don't want to do that on any loan. You don't want to do that in your life at all. There's a lot of money just tied up in insufficient funds, and you don't it's it just is a sign that you don't have the ability to manage money. So if you have a bunch of insufficient funds, we might want to rethink that too. So we will analyze that stuff. I don't care when I look through your bank statement, and obviously it's business, but I don't care if however you do your books and all that, but if your withdrawals are like the liquor store or a bunch of gas station runs that clearly look like they're just crap that you're buying from the gas station, I don't care about that. That's not my problem at all. I just need to make sure you have enough assets in that account for reserves and you have enough deposits going in for your debt to income ratio. I don't care how you spend your money. So as you're gleaning through that thinking, oh my gosh, Deb's gonna judge me, I'm not. I don't care. I have a zero judgment attitude. Zero. Not even a chance in heck do I care about what you're spending your money on. Although I will lecture you if you would like me to. Large unexplained deposits are something we have to think about too. If we have a consistent 5,000 to 12,000 just bouncing between that number, then all of a sudden we have that $30,000 guy or that $40,000 guy, and then we're back to this $8,000 to $12,000 number. That big deposit will probably have to be explained. We've already talked about that just a little bit, but it will have to be explained. We have to make sure that it's consistent. Maybe you made a big deposit because you hadn't made it to the bank. So you had four or five checks that came at the same time. Oh, I have an $8,000, $12,000, $4,000, $7,000, add it all up, and it's that big chunk. That could be the case. And that's easily explained. Throw the invoices together, match it to the deposit that's in there, and we can totally walk through that piece too. Now we know how we qualify and what it takes to get qualified. We're gonna tackle next what does that actually look like? How do we calculate that income? What is the expense ratio factor? And where does it actually fall when we're looking at those numbers? So self-employed, analyzing those bank statements to make sure that you are being responsible with your money. Are those deposits in line? Yeah, tackled all of that. Now let's jump into what does it look like when it comes to the numbers and the calculation? So follow, subscribe, and definitely watch for the next episode that's going to teach you how we actually calculate that income. Thanks so much for listening. I really appreciate it. So stay tuned. We are gonna learn some more next time.