Bank Statements Loan

When applying for a mortgage, lenders typically require documentation of your income to assess your ability to make monthly payments. For most borrowers, this means providing W-2 forms and tax returns to verify the taxable income earned over the past two years.

But what about self-employed borrowers, for whom submitting traditional income documentation might be challenging? That’s where a bank statement loan comes in.

Bank statement loans are designed for individuals who cannot easily provide the standard financial paperwork, such as W-2s or tax returns. Instead of relying on these documents, the lender uses the borrower’s bank statements to evaluate income. These loans are classified as non-QM (non-qualified mortgages), meaning they do not adhere to the traditional requirements set for qualified mortgages.

So, what sets them apart from qualified mortgages? The key difference is that qualified mortgages (QMs) are considered safer for both consumers and lenders, offering more predictable terms and lower risk. Non-QM loans, on the other hand, are seen as riskier for both parties. Because of this added risk, non-QM loans typically come with higher interest rates, larger down payments, and higher closing costs.