Stated income is back! Bank stated that is…

Bank statement programs are the answer to a “stated income” loan for the self employed.  Before you start saying this is what got us all in trouble, let me explain a little why self-employed borrowers have to have additional mortgage options…

You see the W2 workers essentially write off medical insurance expenses and could also get either the standard deduction or a list of deductions.   Those can make a significant impact on the exact amount of taxes you pay.

Now self-employed use similar tactics.  They use a variety of deductions including mileage or vehicle expenses, cellular phone expenses, use of their home office, and even meals and entertainment!

So why isn’t that the same thing?

Because conventional lending uses a borrower with W2’s GROSS figure and a borrower who is self-employed’s NET figure (after deductions apart from some add-backs, but NOT ALL)!  The difference can be significant.

So why bank statements? 

Because simply put, the bank statements show the deposit activity (cash flow for lack of a better term) of the business.  Typically they use 12 or 24 months to cover seasonal activity and that gives a fair average of income for the business.

Wait a minute, isn’t that unfair (since it counts gross deposits)? 

Not really, there is an expense factor given to each type of business, so it doesn’t count every penny deposited as income, it can be as low as 20% (to be worth it)  or as high as 90% (wow), in some rare cases.   This gives a fairer comparison to like businesses.

What should you expect if you choose to try a bank statement loan? 

It isn’t the lowest rate, you are asking a lender to go outside of the normal way of counting income by going outside of 2 years of business taxes, so they aren’t going to give you the lowest rates.  In addition, you would have a number of odd requests such as a letter or additional forms from your accountant or tax-preparer, perhaps a large amount of reserves (money after your down payment explained here: Reserves, it’s all about the assets…), and a large down payment.  In other words, they will cover their risk of considering your income in a different way by simply lowering their risk in other ways.

Needless to say, there is more paperwork required with a bank statement loan, 24 months of bank statements alone is a challenge for some.  But the payoff, approval instead of a turn down, is worth the extra effort to collect down payment funds, reserves, and the additional paperwork to prove you make what you say you make.

Where can I get one? 
Funny enough, not at your BANK!  Start your bank statement loan here: Start here