Core Concept:

Bank statement loans are designed for borrowers who may not meet traditional lending requirements due to their inability to demonstrate sufficient income through tax returns, pay stubs, or W-2s. Instead, eligibility and income calculation are based on analyzing monthly deposits into personal or business bank accounts over a period of 12 or 24 months.

Key Benefits and Target Audience:

• Ideal for Self-Employed Borrowers: These loans are particularly beneficial for self-employed individuals who may report low profit numbers on their tax returns despite having high gross receipts. As the source states, “This is excellent for self-employed borrowers who’ve shown low profit numbers on their tax returns but have high gross receipts coming in.”
• No Tax Returns, Pay Stubs, or W-2s Required: As the alternative names suggest (“alt doc loans” or “no doc loans”), these loans eliminate the need for traditional income documentation.

Loan Program Details:

• Down Payment: Down payments can be as low as 10% for purchases. A slightly higher down payment may be required for borrowers with lower credit scores.
• Income Calculation:Method: Income is calculated based on the total monthly deposits over the selected period (12 or 24 months). The account balance is not considered.
• Expense Factor: An “expense factor” is applied to the total deposits to estimate the borrower’s net income. This factor, representing business expenses, typically ranges from 15% to 50% and is based on the type of business and number of employees.
• Lower Expense Factor: A lower expense factor (e.g., 10%) can be used if a CPA or tax preparer provides corroboration via a letter.
• Personal Account Exception: When using personal bank statements, no expense factor is applied, allowing the full gross deposits to be considered as income. This is highlighted in the example of the architect using personal returns: “When you use personal returns we actually do not have to use any expense Factor at all so in this case the expense factor is zero percent so we’re able to use that full two hundred and forty thousand dollars in Gross deposits as income.”
• Loan Uses: The program supports purchases, refinances (refi), and cash-out refinances (refi cash-outs).
• Credit Score Requirements: A credit score of 700 is required for a 10% down payment. Borrowers with a credit score as low as 600 can qualify with a slightly higher down payment.
• Loan Amounts: Loan amounts can go up to four million dollars.
• Property Types: Loans are available for primary and investment properties with one to four units.
• Borrower Eligibility: The program is open to U.S. citizens, permanent residents, non-permanent residents, and individuals with an EAD card or an ITIN number.
• Interest-Only Options: Interest-only options are available to help keep monthly payments low.
• Self-Employment History: Only one year of self-employment history is required, unlike most loans that need at least two years.
• Reserve Requirements: There are no reserve requirements with a 25% down payment.
• Multiple Income Streams: Up to three business income streams are allowed if a borrower has multiple sources of income.