What is a bank statement loan?

If you're a self-employed individual or entrepreneur, obtaining a conventional mortgage can be challenging, this is primarily due to the way potential lenders evaluate your income. However, there is an option that can offer the much-needed flexibility for such individuals - bank statement loans. Let's delve into what these loans are and how they may be beneficial for those with unconventional income streams.

Unraveling the concept of bank statement loans

Bank statement loans, often referred to as self-employed mortgages, provide an alternative method of verifying income for borrowers who have non-traditional income sources. Rather than focusing solely on tax returns or W-2s, lenders review a series of bank statements (typically 12-24 months) to ascertain the borrower's ability to repay the loan. This type of loan is not only for self-employed individuals but for anyone whose tax returns may not accurately reflect their earnings due to write-offs or multiple income streams.

The benefits of a bank statement loan

Bank statement loans come with several benefits that make them an attractive option for self-employed individuals and entrepreneurs. First, they offer a flexible approach to income verification, which can be a game-changer for those with fluctuating or unconventional income. They can also provide borrowers with access to larger loan amounts; this is because the underwriting process considers total income deposits rather than just taxable income. Secondly, with bank statement loans borrowers have an opportunity to utilize their financial savvy to their advantage. By making smart decisions about business expenses and deductions, they can lower their taxable income without hindering their chances of getting a mortgage.

Ideal scenarios for considering a bank statement loan

Bank statement loans are particularly advantageous when traditional income documentation does not adequately reflect an individual's earning potential or financial stability. One such scenario a loan consultant at Milo encountered involved a seasoned entrepreneur whose keen understanding of business write-offs had resulted in lower earnings reported on his tax returns, causing apprehension for conventional lenders.

Despite being involved in several lucrative ventures, his high debt-to-income (DTI) ratio (a key metric used by lenders to measure a borrower's ability to manage monthly debt payments against their gross monthly income) posed a hurdle. By leveraging Milo's bank statement program, however, a more accurate picture of his financial standing emerged. His regular deposits painted a more nuanced portrait of his income, bringing his DTI ratio down to a comfortable 45%. This unconventional yet effective approach led to a successful refinancing plan.

Bank statement loans and traditional loans serve different needs and different borrowers. While traditional loans may be suitable for regular W2 employees with stable, predictable income, bank statement loans offer an alternative for those whose income streams are more complex and varied.

A flexible solution for unconventional earners

In conclusion, bank statement loans can offer a viable and beneficial alternative for self-employed individuals, entrepreneurs, or those with multiple income streams. They provide a lifeline to those whose tax returns may not accurately reflect their actual income, opening doors to home ownership that may otherwise remain closed.

Whether you're a seasoned entrepreneur looking to expand your portfolio, a foreign national interested in purchasing a vacation or rental property in the U.S., or a crypto enthusiast keen to leverage your digital assets, consider exploring your options with Milo. With a unique approach to lending and a deep understanding of diverse financial narratives, Milo is a reliable partner ready to guide you toward your financial goals.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.