Bank Statement Loans: What They Are, How They Work & Who They're For

Getting a mortgage can be a challenge for self-employed individuals, small business owners and gig economy workers. Traditional mortgages often rely on W-2s, tax returns and pay stubs to verify income and many non-traditional borrowers feel locked out of the housing market.

That’s where bank statement loans come in. These flexible mortgage options allow you to use your bank statements as proof of income and are a lifeline for entrepreneurs and freelancers.

In this guide we’ll break down everything you need to know about bank statement mortgage loans, including how they work, who qualifies, the pros and cons and how they compare to conventional loans. This essential guide will help you decide if bank statement loans are for you.

What Are Bank Statement Loans?

Bank statement loans are a type of non-qualified mortgage (non-QM loan) for borrowers who can’t easily provide traditional income documentation like tax returns or W-2s.

Instead lenders assess your financial health based on 12 to 24 months of bank statements, showing your consistent deposits and overall cash flow.

These loans have become popular with self-employed borrowers, freelancers, consultants and gig workers whose income streams may fluctuate or come from multiple sources.

Bank statement loans provide flexibility by focusing on actual deposits, not net income after deductions and write-offs, giving you a more accurate representation of your income potential.

At Keyswag Lending we see a growing demand for these loans especially in high-cost housing markets like California where more borrowers operate independent businesses.

How Do Bank Statement Loans Work?

Bank statement mortgage lenders typically require 12 or 24 months of consecutive personal or business bank statements, depending on the lender’s guidelines. These statements are analyzed for consistent deposits, income trends and cash reserves.

Lenders also consider loan-to-value ratios (LTV), down payments and interest rates which may be slightly higher than traditional mortgages. This is because bank statement loans are riskier for lenders due to alternative income verification methods.

Unlike hard money loans which are asset based bank statement loans still evaluate your income and financial strength. But they are much more flexible than conventional loans making them an excellent option for non-traditional income borrowers.

Who Qualifies for a Bank Statement Loan?

These loans are for self-employed borrowers, entrepreneurs, business owners, consultants, gig workers and freelancers. You may qualify if:

• Have been self-employed for at least two years.
• Can provide 12-24 months of bank statements showing sufficient deposits.
• Have healthy cash flow and adequate reserves.
• Have a good credit score, typically 620 or higher.
• Can make a down payment of 10-20%, depending on the lender.

If your income is inconsistent or seasonal bank statement loans give a more accurate reflection of your earning potential, avoiding the limitations of W-2s or tax returns.

Explore all your loan options to see if a bank statement mortgage is the best fit or if DSCR loans or private lending might be better for you.

Benefits of Bank Statement Loans

Bank statement loans offer several advantages over traditional mortgages:

• No need for W-2s, pay stubs or tax returns.
• More flexible income documentation for self-employed borrowers and freelancers.
• Can qualify with multiple income streams or seasonal income.
• Faster approval process than conventional loans as the focus is solely on bank deposits.
• Better representation of actual income for business owners and gig workers.

At Keyswag Lending we help clients in Irvine, San Jose and throughout California navigate the bank statement loan process.

Drawbacks and Considerations

While bank statement loans offer flexibility they also come with:

• Higher interest rates than traditional mortgage loans.
• Larger down payment, often 10-20%.
• More thorough review of your bank statements, including explanations for large deposits or irregularities.
• Not ideal if you can provide clean tax returns or W-2s as conventional loans may offer better terms.

Use our Loan Rate Calculator to see how these higher rates will impact your monthly mortgage payments.

Bank Statement Loan Application Process

Applying for a bank statement loan is easy if you know what to expect:

1. Gather 12-24 months of personal or business bank statements.
2. Prepare profit and loss (P&L) statements, if required.
3. Provide proof of business ownership or licensing.
4. Meet credit score and down payment requirements.
5. Work with a lender like Keyswag Lending who specializes in helping self-employed borrowers find the right programs.

Use our Mortgage Calculator to get accurate payment projections for different loan amounts, rates and terms.

Is a Bank Statement Loan Right for You?

A bank statement mortgage loan may be for you if:

• You own a business, work as a freelancer or receive 1099 income.
• You have inconsistent or seasonal income.
• You don’t want to provide tax returns or W-2s.
• You have strong bank statements showing healthy deposits and reserves.

If you’re not sure if bank statement loans, hard money loans or DSCR loans are for you our experts can walk you through the best loan options.

Conclusion

For self-employed borrowers bank statement loans are the path to homeownership without the traditional income documentation restrictions. At Keyswag Lending we help non-traditional borrowers find the right mortgage fit. Visit our About Us page to learn more about how we can help you.

We also serve clients throughout California and beyond—check our Service Areas page to see where we can help you get the best financing options and contact us today to start your journey.