Most lenders and banks require borrowers to provide proof of income when they apply for a loan. This proof of income is often in the form of an income tax return or a paycheck stub.
If you're self-employed (and don't receive paycheck stubs) or behind on filing your taxes, one option to consider is a bank statement loan program. A bank statement loan program allows borrowers to apply for a loan by submitting their bank account statements as proof of their income and ability to repay to loan. Keep reading to learn a few things you should know about bank statement program loans.
1. Bank Statement Loans Require Statements from the Same Bank Account
When you submit your bank statements for your loan, your lender will usually require anywhere from a year to two year's worth of statements. These statements should all be from the same checking, savings, or investment account.
For example, if you need to submit a year's worth of statements, you don't want to submit four months' worth of statements from three different accounts. All 12 statements should be from the same account so that the lender can look for proof of income and deposit and withdrawal patterns. If you use multiple bank accounts for your deposits and payments, you'll want to submit statements for all of your applicable accounts for the specified time period.
Your lender will also use your statements to determine if you tend to spend all your income or keep some money in reserve.
2. Your Credit Still Matters
To obtain approval for a bank statement loan program, you'll need to prove to the bank that you're creditworthy. Bank statement loans have similar credit requirements as other loan programs.
The higher your credit score, the better your chances of securing a loan at an affordable interest rate. Check that your credit report is accurate, try to reduce your credit utilization ratio, and make all your loan payments on time to increase your chances of obtaining a bank statement loan with favorable terms.
3. Lenders Also Examine Your Business Expenses
When calculating your average income for a bank statement loan, your lender will also examine your business expenses so that they can determine your net income. For example, if you have an average monthly income of $5,000 and average business expenses of $1,000, this means that you have an average monthly net income of $4,000.
Most lenders use your net income for your bank statement loan. Your net income is a better representation of how much money you have to repay the loan.