What is a Bank Statement Mortgage Program?
First of all, the most important thing for real estate investors to know is that Bank Statement rates are lower than DSCR loans!
A bank statement program is an alternative mortgage solution that allows borrowers to forgo presenting tax returns, pay stubs, W-2s and other employer verification forms. Instead they can simply provide—you guessed it—bank statements as proof of income.
The underwriting process in most conventional mortgages generally requires the lender to verify the applicant’s status and income by reviewing their tax returns. The problem with this method is that underwriters don’t necessarily get a complete picture of the borrower. Perhaps a client is self-employed and has an income that is difficult to document. Or maybe the borrower has a prior bankruptcy in their records, which doesn’t correctly reflect their current financial status. Whatever the case, some borrowers prefer not to provide this documentation.
Keep in mind—this doesn’t mean the borrower can’t keep up with a mortgage. A bank statement mortgage solution simply offers clients an alternative option for proving their income. For many small business owners, this option is more straightforward and offers a clearer look into their current success.
Which Borrowers Benefit from This Solution?
While some borrowers won’t break a sweat if asked to provide full documentation when applying for a loan, other investors may need some wiggle room to successfully secure financing. Below we highlight a few types of borrowers that may be a good fit for a bank statement solution.
- Self-Employed Borrowers
Tax season comes for us all. And the way borrowers report income can seriously affect their chances at qualifying for a commercial loan. Individuals who work under an employer have a collection of pay stubs and receive a W-2 form at the end of the year reflecting their total earned income. Self-employed professionals file their taxes differently and don’t have access to these documents.
That’s when a bank statement program is helpful. Because a client won’t need to provide tax returns to show proof of income. Instead, they can provide bank statements (generally 6 to 12 months) to us as income verification.
- Borrowers who struggle to show consistent growth through tax returns
Picture this: A small business owner runs a successful automotive shop and wants to refinance the mortgage on his/her property to make improvements to his business. The only problem standing between them and the loan is a bankruptcy filed seven years ago that’s tainting their credit history.
Although this borrower currently has a booming business and is credit-worthy, they will likely struggle when looking to secure a refinance because of a) poor credit history and b) insufficient documentation due to their self-employment status.
Working with a non-bank lender that offers reduced documentation solutions like a bank statement program will allow this small business owner to finally secure that mortgage he’s been searching for. And remember – while these solutions offer more opportunities, clients may need to pay a slightly higher interest rate.
Borrowers who require more flexibility than a bank is willing to provide
Even if a borrower is able to produce full documentation, they may still prefer to keep the process simple and only provide bank statements when applying for a commercial loan.
Partnering with a non-bank lender for a bank statement program also allows borrowers to take advantage of other flexible options. Think less restrictive cash-out refinance options, a wider range of property eligibility (multifamily to automotive properties), and longer loan terms (15 to 30 years).
Spartan Commercial Mortgage and Our Process
Our process is simple. If a borrower can’t produce tax return documentation we have the solution. We will instead accept 12 consecutive months of their business bank statements as income verification. Our expert underwriters will then use this information to review the file. From there they will determine whether or not the borrower is fit for our program.
More specifically, we apply an industry standard expense factor to determine a borrower’s net income.
With this program and process, you can feel confident that you will receive the right solution for your financing needs.
Call us today for a free consultation or click here to get pre-approved.
Thanks,
Michael Meyer
President Spartan Commercial Mortgage Services
mike@spartancommercialmortgage.com
(860) 876-0572