Business owners and/or private contractors will find a bank statement mortgage may be the option you need to turn to when looking to get a mortgage if you show low income on your tax returns.
What is a bank statement mortgage loan?
A bank statement mortgage is a home loan that uses a borrower’s bank statements to calculate their income. This is considered an alternative documentation loan type since tax returns are not used to calculate income.
These loans are for self-employed borrowers and/or private contractors who have substantial tax write offs on their tax returns. When showing low income on tax returns it can be challenging to prove the ability to repay the mortgage. By using bank statements to qualify, there is alternative approach to calculating income when considering purchasing a home today.
Personal Bank Statements – When using personal bank statements to qualify, the deposits will be carefully reviewed to determine where deposits are coming from.
If deposits are consistently coming from another account, account statements (two months) will need to be provided to confirm it is an account associated with the business.
If using personal account to qualify, you do NOT need to be 100% owner of the business, but all individuals listed on the account must also be on the new mortgage loan.
Any large/unusual deposits will need to be sourced to confirm they were from business activity (as opposed to a deposit from the sale of an asset, or a loan). If the deposit was from a source other than business activity, that deposit will be excluded from the income average calculation.
Business Bank Statements – When using business bank statements to qualify, deposits will be used minus an expense factor. For simplicity, some lenders will use a 50% expense factor. Example: if total deposits are 200K in the last 12 months, the qualifying income would be 100K.
Some lenders will allow a more precise expense factor based on CPA letter or profit and loss statement. Going that direction may allow for higher use of business account deposits.
If we are going to be using a business account to qualify, you MUST be 100% owner of the business.