There are some borrowers (self-employed and W2) who earn a higher than average income yet it does not translate on their tax returns due to multiple deductions. Often times this means you will not qualify at your local bank using traditional documentation.
If you have a difficult time qualifying or documenting income with your 1040 tax returns, you are a prime candidate for an "alternative income" loan.
Advantages for the Borrower
Income verified through bank statements — for borrowers with strong credit (640+) and liquid assets.
Less documentation — No Tax Returns, No W-2s, No pay stubs.
Just because it’s complicated to show your income on tax returns doesn't mean getting a mortgage loan should be complicated. The best alternative to "Stated Income" loans is to provide 12 to 24 months of bank statements.
Bank Statement Jumbo Loans
How is Income Calculated with the Bank Statement Loan?
Your income is calculated by using 100% of work-related deposits from the most recent 12 or 24 months of "personal" bank statements or if using business bank statements up to 15% of deposits. With business bank statements, you may need to provide a business expense letter and/or profit & loss statement for the past year and year to date.
What is the maximum loan amount for a bank statement mortgage?
Since this is a jumbo loan site, the minimum here is $484,351 and the maximum amount for high-net worth borrowers is $6,000,000. Most lenders are capped at $3,000,000, not here. To be eligible for loans over $3 million, the loan to value decreases accordingly based on the property value. As an example; for a loan of $5 million, the property would have to appraise for $9,500,000.
How do I qualify for a 12 or 24 month bank statement loan?
- Proof of Self-employment. Borrowers will need to provide a business license or a CPA letter to confirm your self-employment for the last two years. If using a CPA letter, it will need to state the CPA has reviewed your tax returns for those same years and confirms your self-employment. Borrowers who own corporations or LLC's simply need to provide copies of the entity filing with the secretary of state.
- Proof of Assets & Reserves. For a purchase loan, verified liquid assets of 2- to- 6 months in reserves will be required. For the best rates, you'll want to show you have six months of P.I.T.I. in reserves.
- Proof of Housing Payment History Last 12 months. On purchase loans, the borrower(s) will need to provide copies of canceled rent checks or verification from a property management company for the last twelve months. Without a recent housing payment history, the down payment increases to 30-percent minimum.
The interest rates on the 12- or 24- month bank statement loan is approximately 1-2.5% higher than traditional income documented loans using tax returns.
The down payments can be as low as 10% up to $2 million. Yes, that's right. And for those buying a $2.9 million dollar home in high-cost areas of California, Colorado, Texas, or Florida, just 15-percent down gets you in on the "bank statement loan" product subject to additional qualifying factors. Rates and APR may vary according to the borrower's credit score, payment history, loan to value, and loan type(refinance or purchase).
Less documentation translates into a faster process and quicker approvals.
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True stated income products do still exist for single family homes rental properties. For a primary residence, this has become exclusive to private banking clients with institutional investors who will hold these loans privately.
As of Nov. 17, 2019, stated income loans for primary residences are available ONLY in California, Colorado, & Florida.
- Borrower must be self-employed
- Credit score of 700 or more with excellent credit in last 5 years
- Down payment of 25% (30% if a refinance)
- Need 9 months of P.I.T.I reserves
- Home based-business is okay. Must have a verifiable business address
- Must have (24) month recent mortgage history
- NO First-time Homebuyers, Investors or Flippers, etc.
- Rates start at 4.50% on a 7-Year Fixed ARM
- Minimum loan amount is $484,351
- No rural properties
Liquid Asset Qualifier Mortgage
Liquid Asset Qualification Mortgage Loans have become a very popular choice and advantage for the under-employed, unemployed, part-time and retired borrowers who own substantial liquid assets. They may be categorized as income poor but asset rich.
How Does Asset Qualifying Mortgage Work?
The Asset Mortgage is somewhat of a new loan product which truly puts idle money to work for you as a new stream of income. Borrowers who have substantial liquid assets are able to qualify by drawing an income from those assets.
This program is not intended for borrowers who have little or no income and no liquid assets. A significant amount of liquid assets is necessary. This program is ideal for wealthy borrowers who have $1,000,000 or more in the bank, stocks, bonds, or mutual funds they do not want to access.
"This loan product works by dividing the liquid assets by 60 or 84 months or, on a 1:1 ratio. Example, if you have $1,000,000 in a "personal account" the lender will lend you $1,000,000." subject to the maximum loan amount of $3 million and maximum loan to value of 75%. This means you'll need a minimum 25-percent down payment (or equity for a refinance).
Assets that qualify consist of funds in checking and savings accounts, CD, investment accounts such as stocks, bonds, mutual funds, trust accounts. If retirement accounts, the borrower must be 62 years of age or more to use IRA's and 401k's retirement accounts and the percentage allowed is decreased if in distribution.
Example of Asset Amortization Mortgage for a Borrower in their 40s
For instance, $4,000 a month income is shown on the tax returns of a 47 year old prospective California home buyer. The result is a debt to income ratio that exceeds the maximum allowed. Not good.
With this loan product, it allows the borrower's liquid assets from mutual funds and stocks totaling $1,200,000. By using this portfolio program, the lender will amortize over 30 years the $1,200,000 using a 5% return. This results in $6,442 in monthly income that is added to the borrowers existing verified income. When combined, it will result in the borrower's income being $10,442 per month. The end result is the borrower now has the debt to income ratios he needs to purchase his home.
Another Example of Asset Mortgage for 67 year old
In scenario number two, let's imagine a 67 year old wants to purchase a home in the South Bay beach city of Manhattan Beach,CA. Including income from Social Security, his tax forms only show income of $5,500 each month. Like the borrower above, he has substantial liquid assets of $950,000. In this situation, a 5% return is still used, but it the amortization goes down to just 18 years. This gives the home buyer $6,327 additional monthly income for a total qualifying income of $11,827.
Tremendous Benefits for Retired Borrowers
The lender figures out the amortization of the income used to qualify depending on the borrower's age. The amortization can only go as much as 30 years, and cannot be less than 10 years. The starting age is 85. Therefore, assets are amortized for 30 years for any borrower 55 years or less . If a borrower is between 55 and 75 years of age, their age is subtracted from 85. So a person who is 64 year old, will have a 21 year amortization on their assets. (85-64 = 21).