Real estate investors who had invested in real estate prior the 2008 Real Estate and Mortgage Collapse may have heard of bank statement mortgage loan program where it was very common pre-2008 mortgage and lending era. Sub Prime mortgage lenders and other mortgage lenders did bank state mortgage loan program lending where it was mainly geared towards self employed borrowers. Home buyers who are a self employed borrower where they earn seasonal income with a lot of unreimbursed expenses or other business professionals who are not a consistent wage earner and have an irregular income from their businesses can now qualify for a home loan with the bank statement mortgage loan program offered by Gustan Cho Associates.
How does the bank statement mortgage loan program work?
Bank Statement Mortgage Loan Program falls in the Non-QM Loan Program .
- The Non-QM Loan Program is also called Out-Of-The-Box Mortgage Loan Program where lenders will lend on non-traditional types of residential lending where borrowers would otherwise not qualify for a mortgage.
- Mortgage programs such as one day out of foreclosure, deed in lieu of foreclosure, and short sale is now offered at The Gustan Cho Team via our correspondent lending division.
- Non-QM Loans are portfolio loans and cannot be sold to Fannie Mae or Freddie Mac.
What documents are required?
The way the Bank Statement Mortgage Loan Program works is in lieu of borrowers providing two years of tax returns, two years of W-2s, and most recent paycheck stubs, the borrower is just required to provide either or a combination of 12 to 24 months of bank statements and/or Profit and Loss Statements of the borrower’s business prepared by the borrower’s accountant.
- The Bank Statement Mortgage Loan Program has been a hit since it was launched.
- Even if the borrower were to earn his or her income part of the year, as long as the borrower has maintained bank statements which documents their deposits and income, the Bank Statement Mortgage Loan Program will work in securing a self employed borrower a mortgage loan.
Types of properties eligible under the bank statement mortgage loan program
Self employed borrowers who do not declare a lot of income due to being self employed and taking advantage of their business expenses can now qualify for a mortgage loan with NON-QM Loans via Bank Statement Mortgage Loan Program to purchase the following properties:
- Owner occupied Single Family Home
- Second Homes
- Investment Homes
- Two to Four Unit Residential Properties
- Non-Warrantable Condominiums
Types of bank statement mortgage loan program available
There are three different types of Bank Statement Mortgage Loan Program.
- The first type of Bank Statement Mortgage Loan Program is where self employed borrowers will be qualified with personal and business bank statements and is often referred to as a Personal/Business Combined Bank Statement Mortgage Loan Program.
Here is how Case Scenario # 1 works:
- Borrower is required to provide bank statements from the most recent 12 consecutive months
- Borrower is also required to provide a Profit & Loss (P&L) statement prepared by the borrower’s Certified Public Accountant, CPA or a Licensed Tax Preparer
- The expenses of the borrower’s business which is shown on the P&L must be in line and reasonable considering the borrower’s type of self-employment
- The Profit and Loss Statement, P&L, will be the primary source for information to qualify the mortgage loan borrower
- The revenue from theProfit and Loss Statement, P&L will be supported by the bank statements the mortgage loan borrower provides
- The bank statements of the borrower must reflect deposits no less than 5% of the revenue stated on the P&L
- The mortgage loan underwriter reserves the right to request bank statements that can exceed 12 months and many times, the mortgage loan underwriter can request bank statements for 24 consecutive months
Here is how Case Scenario #2 of the Bank Statement Mortgage Loan Program works– You Maintain Separate Personal and Business Accounts
- No Profit and Loss Statement, P&L Statement, is required
- Only your personal bank statements will be considered to determine eligibility of the Bank Statement Mortgage Loan Program
- Borrower provides personal bank statements from the most recent 12 consecutive months in addition to business bank statements from the most recent 3 months (in order to verify the maintenance of separate accounts)
- Annual bank deposits are averaged to determine monthly income of the borrower using bank statements
- The mortgage underwriter reserves the right to request bank statements from an addition 12 consecutive months if the borrower’s bank statement does not seem solid
- If an optional Profit and Loss Statement, P&L prepared by a CPA or a Licensed Tax Preparer is provided, that will determine borrower’s monthly income
With the above case scenarios, the documents provided to the lender needs to make sense and support the size of the requested mortgage loan amount and the underwriter needs to feel comfortable that the borrower has the ability to repay the mortgage loan. Any irregularities and/or inconsistencies will prompt the mortgage loan underwriter for additional documents to be provided by the borrowers and that may be tax returns or other supporting facts.
Here is how Case Scenario 3 of the Bank Statement Mortgage Loan Program Works– Borrowers Will Only Be Required To Provide Business Bank Statements to Qualify for the Bank Statement Mortgage Loan Program
- Mortgage Loan Borrower to provide business bank statements from the most recent 12 consecutive months
- Mortgage Loan Borrower to provide a Profit & Loss Statement, P and L Statement, prepared by a Certified Public Accountant, CPA or a Licensed Tax Preparer
- The business bank statements of the Mortgage Loan Borrower must reflect deposits no less than 5% of the revenue stated on their business Profit and Loss Statement, the P&L
Lending guidelines on bank statement mortgage loan program
The Bank Statement Mortgage Loan Program is a fairly new lending program that is becoming increasingly popular.
- It is mainly for self employed borrowers who take advantage of the loopholes with writing off business expenses where it helps these borrowers limit their tax liabilities, however, it hurts them in qualifying for mortgage loans.
- Lenders who originate and fund Bank Statement Mortgage Loan Programs are looking for strong credit profile borrowers and will carefully look at borrower’s bank statements for overdrafts and non-sufficient funds on their bank statements and history of their bank statements.
- Overdraft Protection is not viewed favorably by mortgage underwriters.
- One or two overdrafts in a calendar year may not be a deal killer, however, any more overdrafts beyond three may not be permitted.
- Loan officers and mortgage processors should carefully analyze and review overdrafts and non-sufficient funds on both personal and business bank statements prior to submitting the loan file into underwriting.
Source: Gustan Cho NMLS 873293 ustancho.com