When applying for a mortgage as a business owner, it’s extremely common to hear that qualifying isn’t possible due to tax write-offs. The solution may be a 12 month bank statement mortgage to accomplish your homeownership goals. Today we cover everything you need to know about a 12 month bank statement mortgage.
What is a 12 month bank statement mortgage?
This is a loan option available for business owners and 1099 private contractors to get approved with 12 months bank statements, NOT tax returns.
Available on:
- Home purchase
- Refinance
- Cash out refinance
You can use:
- Personal bank statements
- Business bank statements
How does a 12 month bank statement mortgage work?
Just like any mortgage, you’ll submit your application and supporting documents, but instead of providing tax returns, you’ll provide 12 months bank statements and a business narrative.
When you submit the bank statements, be sure to provide legible copies of all 12 months in PDF format in the most organized way you can.
You can typically get 12 months statements from your online bank portal, but if you can’t, you may need to visit a local branch to have them print or fax the statements.
Borrowers who are extremely organized and provide legible copies of docs always close faster.
Once your bank statements and business narrative are provided, your file will be submitted for income review.
The income review consists of the lender calculating an average of deposits over the last 12 months. Any unusual deposits will likely be excluded or will require proof they are business related.
Important note: if there is a pattern of non-sufficient funds (NSFs) in the account provided, there is a strong chance the loan will be denied.
What is a business narrative?
As I mentioned, along with the bank statements, a business narrative will be needed when getting submitted for income review.
We’ll provide the format for you, but basically, the business narrative is you giving a quick picture of the business, including:
- Business name/number/address
- Business type (product business or service business)
- Outlook of the business
- Information about the products/services offered by the business
- Number of employees
- Percentage of ownership of the business
Let’s take a look at how your bank statements will be reviewed.
Personal Account | 12 Month Bank Statement Mortgage
Your income calculation will depend on how you operate your business and how you pay yourself.
If you pay yourself from a business account, into a personal account, then you should be able to use 100% of the deposits that you receive from the business account.
If you don’t have a business account, and you operate your business out of your personal account, then it will be treated as a “business” account, and an expense factor will be applied (see below).
Business Account | 12 Month Bank Statement Mortgage
When using a business bank statement to qualify, there will be an expense factor applied against your deposit to account for overhead.
Typically, to be safe, the expense factor is 50%.
So if you have 300K in deposits into your business account in the last 12 months, your eligible income would be 150K.
However, if you have no employees and/or in a business that has very little overhead, a lower expense factor may be used.
If you have a CPA who can confirm a lower expense factor than what the income review team determines should be used, a CPA letter can be submitted to have your expense factor reconsidered.
Home Purchase | 12 Month Bank Statement Mortgage
You can purchase a primary residence, 2nd home, and investment property with a bank statement loan. Although, for an investment property I would recommend a DSCR loan for simplicity purposes.
For a primary residence home purchase, here is what you can expect:
- As low as 10% down payment (with 700 credit score)
- Maximum debt to income ratio of 50%
- 30 year fixed options available
- Minimum loan amount is $150,000
- Minimum credit score is 620 (with 20% down)
- First time homebuyers are acceptable
Keep in mind, we are entering one of the best buyers markets in recent years. The insane bidding wars of 2019-early 2022 are pretty much over.
If you have been thinking about buying a home over the last couple years, your timing now is perfect.
Get pre-approved here.
Home Refinance | 12 Month Bank Statement Mortgage
There are many reasons to refinance, whether you’re refinancing to lower your payment, or consolidate debt.
Here is what you can expect on a refinance:
- Up to 80% loan to value
- Maximum debt to income ratio of 50%
- 30 fixed options available
- Minimum loan amount is $150,000
- Minimum credit score is 620
- Cash out refinance requires at least 1 borrower to be on title 6 months
Get a quote here.
What to Expect with the Approval Process
With this alternative loan type, you can still expect the loan to be fully underwritten (with the exception of tax returns).
That means your assets and credit will need to be fully verified, and the property needs to meet lender requirements.
The best thing you can do to set yourself up for success for this type of loan (and every loan for that matter) is to provide exactly what the lender asks you for. Do not send in partial bank statements, missing pages, or expired documents.
Providing complete and clear documentation will speed up the process and reduce the need for additional or multiple requests for the same conditions.
Bonus Tip
If you don’t qualify based on 12 months bank statements, there are other options available.
You can also look at getting approved based on 24 months bank statements, or a 12 month profit and loss statement if prepared by a CPA or licensed tax preparer.
In Summary | 12 Month Bank Statement Mortgage
As a business owner or 1099 private contractor – even if you don’t qualify for traditional financing, you may be eligible to get approved with a 12 month bank statement mortgage.
Things to keep in mind:
- Available on home purchase, refinance, and cash out refinance
- Can be done with personal or business bank statements
- Help yourself by being extremely thorough and organized when submitting your application and supporting documents
- There are additional options available even if you don’t qualify with 12 months statements
The most important thing you can do is work with a lender who is highly experienced with these types of loans.
I invite you to reach out.
Get your questions answered.
We have been extremely successful with getting borrowers approved all over the country, even when other lenders said it wasn’t possible.
If for some reason we can’t help, we’ll do our very best to point you in the right direction to help you accomplish your goals.
