Why Bank Statements Matter: How to Qualify for a Mortgage When You’re Self-Employed
- adolfocano6
- Mar 19
- 2 min read
For self-employed individuals, qualifying for a mortgage can feel like an uphill battle. Unlike traditional W-2 employees, who provide pay stubs and tax returns to verify income, self-employed borrowers often face stricter documentation requirements. One of the most effective ways to prove income? Bank statements.
Why Lenders Rely on Bank Statements
When reviewing a mortgage application, lenders need to assess income stability, cash flow, and the ability to repay the loan. For self-employed borrowers, bank statements serve as a reliable alternative to traditional income verification. They provide a clear picture of business revenue, expenses, and net income over time.
How Bank Statement Loans Work
A bank statement mortgage allows self-employed individuals to qualify based on their personal or business bank account deposits rather than tax returns. Here’s how it typically works:
12 to 24 Months of Bank Statements: Lenders analyze deposits to determine average monthly income.
No Tax Returns Required: Instead of looking at tax deductions that may reduce taxable income, lenders focus on actual cash flow.
Down Payment & Credit Score Requirements: Most lenders require at least a 10-20% down payment and a minimum credit score of 620-680, though this varies by lender.
What Lenders Look for in Your Bank Statements
To improve your chances of approval, ensure your bank statements reflect:
Consistent Deposits: Irregular income spikes may raise red flags and cause the funds to be sourced.
Low Overdrafts: Frequent overdrafts can indicate financial instability.
Business vs. Personal Transactions: Keeping business and personal finances separate can make the underwriting process smoother.
Strong Cash Reserves: Lenders may check for sufficient reserves (often called P.I.T.I.A.) to cover a few months of mortgage payments.
Steps to Qualify for a Bank Statement Loan:
Maintain Organized Finances: Keep business and personal expenses separate.
Minimize Large Cash Withdrawals and Deposits: Sudden large withdrawals or deposits may raise concerns and require the funds to be sourced.
Work with a Mortgage Broker Specializing in Self-Employed Loans: Not all lenders offer bank statement loans, so working with an experienced brokerage like American United Homes can help.
Improve Your Credit Score: A higher score can help secure better rates and terms.
Save for a Larger Down Payment: More money down can increase approval odds and lower interest rates.
Is a Bank Statement Loan Right for You?
If you're self-employed and struggling to qualify for a conventional loan due to tax deductions reducing your taxable income, a bank statement loan may be the solution. It provides flexibility while allowing you to leverage your actual earnings rather than what’s reported on tax returns.
Get Started Today
At American United Homes, we specialize in mortgage solutions for self-employed borrowers. If you’re interested in seeing if you qualify for a bank statement loan, contact us today to explore your options!
