Bank Statement Loans Explained: Part 4 | Pros and Cons

Learn the pros and cons of bank statement mortgage loans and who they’re best suited for. In this episode, Deb explains how these loans allow self-employed borrowers to qualify using bank statements instead of tax returns, making them a great option for business owners with significant tax write-offs. She also covers the trade-offs, including higher interest rates, larger down payment requirements, possible reserve requirements, and why these loans can even work for jumbo financing. If you're self-employed and traditional income documentation isn't telling the full story, this overview will help you decide if a bank statement loan is the right fit.

Transcript

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Hey everyone. Welcome back to All Things Home Loans, Credit, and Real Estate. I'm your host, Deb, the mortgage queen. So let's start learning. So let's be straight. Every loan product is going to have a little bit of a trade-off. We're using bank statements as our income documentation. The trade-off on that is usually a little bit higher rate. So let's walk through what it looks like. You've got taxes due if you show a lot of income on your income taxes. If you have a ton of deductions and you write everything off, then you have a smaller amount of taxes more than likely due. Now I'm not a freaking tax advisor. So do not hold me accountable for any tax advice because I'm not a tax person. Here's the pros of this program. We don't need tax returns. We don't want them. I don't want to see them. If you know you haven't made enough income on those tax returns to qualify for a loan, I don't want to see them. If you have a really aggressive accountant or you just have a ton of tax write-offs, this program is for you. Because I'm all for everybody paying their taxes. Don't get me wrong. Everybody needs to pay their way. But I think sometimes people pay more than they need to. And I think sometimes people don't pay as much as they should. That's Deb's opinion. And it's just pretty much garbage, but that's how I feel. But if you're in an industry that have the ability to write off a bunch of deductions and it does reduce your tax liability, fantastic. That's great. Whatever you have to pay in your income taxes, but this helps if you have a large down payment, it helps you be able to get into a home. Where it's pretty flexible on the income calculation. We have the ability to look at the overall deposits, do a little bit of math calculation that way. We've obviously talked about the expense factor ratio. So it's very flexible on what income we can uh use to be able to qualify. I don't know if you guys know this or not, but Fannie Mae, Freddie Mac, they're the conventional people, they have a max loan amount. And once you go above that max loan amount every year, it's actually a jumbo loan. These programs allow us to get into that jumbo range. And on some of the products, you actually get a better interest rate because of the higher loan amount. So sometimes the penalty for a jumbo loan on a Fannie Mae becomes a benefit when you're using bank statements to document your income. So there is a possibility of a win-win there. Here's the cons higher interest rates. I have not up to this date had a lower interest rate than what you can get on a regular conventional loan. So I'm pretty much 100% sure that your interest rate is going to be higher if we're comparing no discount point to no discount point, comparing apples to apples. So you got to plan on a little bit higher interest rate, larger down payment. There is no down payment assistance programs on bank statements. You have to have your own down payment. We have programs that will get in with a 10% down payment. We have some of them that require a full 20%. So down payment is a big requirement. We offer them. They're not a very popular program. We offer them in our office and I love them. That's the world I came from. The subprime industry was bank statement program before the crash, before the world fell apart. But that was a program that we did all the time. I love it. I just love the program. It's so awesome because I think self-employed people get into self-employment because they think that their jobs are going to be easier. Once you're a self-employed person, and if you deny this, like if you don't agree with me, that's totally fine, put it in the comments, but you're not working nine to five. Until you put yourself in a different position as an owner of the company, you are working morning, noon, night, weekends, vacations, Saturdays, Sundays, midnight. It doesn't matter. Self-employed people put in a lot of hours. Would love to be able to help you get into a house with that. Gotta have a down payment. If you're using a bank statement program on an investment property, you might have to have reserves. So we might have a little bit of extra money left over in our bank account that's required for us to verify that you're going to be okay to make mortgage payments on a non-owner occupied home if somebody moved out. So there are sometimes reserve requirements. So if you've got to bring in a 10% down payment or a 20% down payment, you might have to have a little extra left over in your bank account for reserves, which is mortgage payment times however many months it is left over in your bank account. And we did not bring that money to closing. Really, the people that benefit the most from this are self-employed people who have very aggressive tax returns and don't show very much income. Not enough income to qualify for the home that you want. That is a huge benefit for this program. Think about this though, before you apply, there are some pieces that come that derail this loan. We want to be in front of what those pieces are when it comes to qualifying for bank statements. Uh, on our next episode, we're going to talk about those things that come up that we need to be prepared for and what could potentially derail the loan. So till then, have a good day. Thanks so much for listening. I really appreciate it. So stay tuned. We are gonna learn some more next time.