Getting approved for a bank statement construction loan can be a great option for contractors, developers, and builders who want to finance new construction projects. Unlike traditional construction loans that require tax returns, bank statement construction loans allow borrowers to qualify using 12 or 24 months of business or personal bank statements.
In this comprehensive guide, we’ll explain everything you need to know about getting a construction loan based on bank statements only, with no tax returns required.
What is a Bank Statement Construction Loan?
A bank statement construction loan is a type of alternative financing that enables contractors, builders, and developers to get funding for new construction projects based on their bank statement deposits rather than tax returns or pay stubs
With this type of loan, the lender will review 12-24 months of your business or personal bank account statements to determine your average monthly deposits They use this number as your qualifying income, so you can get approved and receive construction financing without having to provide tax returns
Who is Eligible for a Bank Statement Construction Loan?
Bank statement construction loans are designed for:
- General contractors
- Custom home builders
- Real estate developers
- Construction companies
- Individuals who flip houses
Essentially, anyone in the construction industry who has regular deposits into their business or personal bank account can potentially qualify for this type of alternative construction financing.
What are the Benefits of a Bank Statement Construction Loan?
There are several advantages to getting a construction loan based on bank statements rather than tax returns:
-
No tax returns required – The biggest benefit is not having to provide business or personal tax returns, which speeds up the approval process.
-
Use deposited income to qualify – Your loan amount will be based on the deposits to your bank accounts rather than your net income on tax returns. This allows contractors and builders whose tax returns show lower net income due to deductions/expenses to qualify for more financing.
-
Flexible terms – Bank statement construction loans offer more flexibility on loan amounts, interest rates, down payments, and repayment terms compared to conventional construction loans.
-
Funds available quickly – Because bank statement loans don’t rely on lengthy tax return verification, contractors can access funds faster, often in as little as 10-14 days from application to funding.
What are the Requirements for a Bank Statement Construction Loan?
While bank statement construction loans are more accessible than conventional construction loans, there are still requirements you’ll need to meet to get approved:
-
2 years self-employment – Most lenders require you to have been self-employed for 2 years minimum in the same line of work.
-
620+ credit score – A credit score of 620 or higher is generally needed to qualify for the best rates and terms.
-
10-20% down payment – Expect to make a down payment of 10-20% of the total project costs. The required down payment depends on your credit score and income.
-
Sufficient reserves – You’ll need enough reserves in your bank accounts to cover 3-12 months of loan payments to account for construction delays or slow sales.
-
Clean bank statements – Lenders will review your bank statement deposits and exclude non-business related deposits. Seasoned bank accounts with consistent deposits make for the strongest applications.
As long as you meet these requirements, you can be approved for a bank statement construction loan based on your average monthly deposits rather than net income from tax returns.
What Loan Types Are Available?
Bank statement construction loans are offered in several forms to meet the needs of different construction projects:
-
Single close construction-to-permanent – One loan to cover construction and then converts to a permanent commercial or residential mortgage when the project is completed.
-
Two close construction-to-permanent – Separate construction loan and permanent loan with two closings. Allows for more flexibility.
-
Construction-only – Funding is for the construction phase only. A new loan is required for the permanent mortgage.
-
Commercial construction – For commercial projects like apartment buildings, retail spaces, offices, etc.
-
Residential construction – For building single-family homes, townhomes, condos, etc.
-
Heavy rehab loans – For major home renovations like additions, knocked-down walls, new floors/roofing, etc.
What Rates and Terms Are Available?
As a type of alternative financing, bank statement construction loans offer more flexibility but also tend to have different rates and terms than conventional options:
-
Interest rates – Expect interest rates from 7% to 13% depending on your credit score, income, and down payment amount. Rates are generally 1-3% higher than conventional construction loans.
-
Loan amounts – Can range from $100,000 up to several million dollars. Loan amounts are capped at 75% of the completed project value.
-
Loan term – Terms up to 36 months for construction. Permanent loans up to 30 years for commercial and residential projects.
-
Adjustable rates – Many lenders offer adjustable rate options like 6-month and 1-year ARMs to keep payments low during construction.
How Much Can You Borrow?
The amount you can borrow with a bank statement construction loan depends on several factors:
-
Your average monthly deposits based on 12-24 months of bank statements
-
The loan-to-value (LTV) ratio – usually up to 75% of total completed project value
-
Your credit score
-
Required down payment amount
-
The type of project – residential or commercial
For example, if you’re building a home that will be worth $400,000 when complete, and you meet the requirements for a 75% LTV bank statement construction loan, you could potentially qualify to borrow up to $300,000 based on your average monthly deposits.
Having an experienced bank statement lender calculate how much you can borrow for your specific project is key.
How Do I Find the Best Bank Statement Construction Lender?
Choosing the right lender for a bank statement construction loan is critical, since this type of alternative financing requires an experienced lender who understands the construction business.
Here are some tips for picking the best bank statement construction loan lender:
-
Find an experienced lender – Choose a lender who specializes specifically in bank statement construction loans, not just bank statement loans. They need intimate knowledge of the construction lending process.
-
Ask about rates and terms – Inquire about their specific rates, loan amounts, and repayment terms to ensure they align with your project needs.
-
Read reviews – Check reviews and testimonials from their past construction loan clients to gauge customer satisfaction.
-
Compare multiple lenders – Shop loans from 3-4 different bank statement construction lenders to get the best deal.
Working with a reputable bank statement construction loan lender increases your chances of getting approved and sets your project up for success.
The Bottom Line
For contractors, builders, and developers who don’t want to rely on tax returns, bank statement construction loans provide a viable alternative to finance new construction projects. As long as you have consistent deposits into your business or personal bank accounts, you can potentially qualify for construction financing. Just be sure to find an experienced bank statement construction lender who can walk you through the process and help structure the right loan for your next project.
Stated Income Construction Loan Limits
Typical loan limits in relation to loan-to-value/loan-to-cost ratios are as follows:
You can finance the Lesser of 85% of the Cost of Construction, or up to the Following Loan to Values, depending on the income documentation that you will supply.
| Documented Income | Stated Income | No Income Docs |
|---|---|---|
| 90% To $ 400,000 | 80% To $ 400,000 | 65% To $ 400,000 |
| 80% To $ 650,000 | 75% To $ 650,000 | 60% To $ 650,000 |
| 70% To $3,000,000 | 65% To $3,000,000 | 50% To $1,000,000 |
Stated income construction loan programs are now available.
Stated income construction loan programs are a good option if you fall into one or more of the categories listed below and lenders are now reintroducing them for conventional and jumbo construction as well as lot loans.
- Your business and personal tax returns are too complex to decipher actual income.
- You have many benefits that donât show up as a part of your income.
- You have strong credit and financial profiles that easily match claimed income.
It is important to understand the fact that a stated income loan is not a liarâs loan, but rather a loan offered to individuals whose credit and financial profiles are strong enough not to bother with the complexities of business and personal tax returns.
Typically a lender offering a stated income construction loan will require a number of months of bank statements to establish cash flow matching the claimed income, as well as a substantial amount of cash reserves equivalent to 3 to 6 months of income or alternately 3 to 6 months reserves of the loanâs principal, interest and tax payments depending on the specific program.
Bank statements that show inconsistent deposits that canât be justified considering the income type will be scrutinized and explanations will be required.
For example, if the first two or three bank statements in a set of six donât show enough balance and suddenly a huge deposit is made that is not repeated within the next couple of months, thatâs a huge red flag, and the underwriter will demand a justifiable explanation.
Some stated income programs are limited to the self-employed, while some others will accommodate employees.
Additional verifications may be required such as a business license, CPAâs letter confirming your employment and income status without reference to income, or an employerâs verification of employment without reference to income.
Underwriters will typically verify the likelihood of the stated income by checking national average ranges for similar employment or business combined with common sense.
Bank Statement Construction Loans for Self Employed Home Buyers
Do you need a bank statement for a home loan?
For all home loans, lenders need to verify your income before approval. In the case of bank statement loans, bank statements are used as income verification instead of W2s and your tax return. Typically, bank statement mortgage loans require 12 or 24 months’ worth of bank statements.
What is a bank statement loan?
A **bank statement loan** is a type of mortgage that allows **self-employed borrowers** to qualify for a home loan without relying on traditional income documentation such as tax returns or pay stubs.Instead,
What is a bank statement mortgage?
Bank statement mortgages are an alternative loan option for those with non-traditional income. This can include freelancers, contractors, small business owners, and other similar professionals. These loans help non-traditional borrowers qualify for mortgages thanks to their:
Are bank statement loans available?
Limited availability. All lenders may not offer bank statement loans, limiting the options available to borrowers. Researching and finding lenders who specialize in these types of loans is essential. This may require more time and effort compared to finding a traditional mortgage lender.