To apply for a conventional mortgage loan, borrowers usually must provide pay stubs and W-2’s from the past two years of employment. But if you are Self-Employed and/or own your own business, you might not have W-2’s and/or pay stubs and you likely take advantage of your IRS tax write offs making it harder for you to qualify for a Traditional (Conventional, FHA or VA) Home loan.

A bank statement loan requires only the bank statements of Self-Employed applicants to determine if they can produce sufficient income to warrant approval for a mortgage loan.

Usually mortgage lenders that offer Bank Statement Loans will require 12 to 24 months of bank statements and average the deposits to calculate your qualifying income.

Qualifying income calculated using total deposits from the personal bank statements, minus any inconsistent or large deposits not justified.

Qualifying income based upon the total eligible deposits from the statements reviewed divided by the number of statements. The most recent bank statement must be consistent with the qualifying income.

Examples:

• Deposits Total $350,000 from 12 Months of Bank Statements.
  •    $350,000 / 12 = $29,167 Qualified Monthly Income
• Deposits Total $350,000 from 24 Months of Bank Statements
  • $350,000 / 24 = $14,583 Qualified Monthly Income

Business Bank Statements must be analyzed with either a Fixed Expense Ratio (50%) or a Business Expense Statement Letter (call us for details if this does not make sense).

Fixed Expense Ratio Example:

• Total deposits from all bank statements, less any inconsistent deposit(s), multiplied by 50%, multiplied by ownership percentage, divided by the number of bank statements reviewed.
  • Deposits x (.50) x (ownership %) / 24 or 12 = qualifying income
  • For example: $360,000 of deposits x .50 = $180,000 x 1.00 = $180,000 / 12 = $15,000 qualified monthly income

Business Expense Statement Letter Example:

• Total expenses are calculated by multiplying the total deposits by the expense factor provided (subject to a minimum total expense percentage of 10%), multiplied by ownership percentage, divided by a number of bank statements.
  • Deposits x (expense ratio) x (ownership %) / 24 or 12 = qualifying income
    • Example: $360,000 x .75 = $270,000 x .50 = $135,000 / 12 = $11,250\
      • $25,000 x 1.00 (100% Ownership) = $25,000 qualified monthly income