Homeownership comes with a hidden treasure known as home equity, and if youre a self-employed homeowner, you might be wondering how to determine and check your home equity to leverage it for your financial needs. In this article, well delve into what you need to know about home equity loans, with a particular focus on bank statement home equity loans and lines of credit (HELOCs) that cater to self-employed individuals.
Home equity loans allow homeowners to tap into their home’s equity to access funds. Traditionally, borrowers have needed to provide income documentation like tax returns and paystubs to qualify. But for self-employed borrowers or those with non-traditional income sources, this can be challenging. An alternative is a bank statement home equity loan.
What is a Bank Statement Home Equity Loan?
A bank statement home equity loan works similar to a traditional home equity loan or HELOC. The key difference is qualifying and proving your ability to repay the loan.
With a bank statement home equity loan the lender uses your bank account statements rather than tax documents to verify your income. This helps if you
- Are self-employed
- Have irregular income
- Use business write-offs to lower your taxable income
By looking at deposits and balances over time, lenders can assess your typical earnings. If you meet their credit and home equity requirements, you may qualify for a competitive loan.
Who Should Consider a Bank Statement Home Equity Loan?
This type of financing is best for borrowers who can’t prove their income via traditional means. This includes self-employed individuals like:
- Entrepreneurs and small business owners
- Real estate investors
- Consultants and freelancers
- Commission-based workers
- Doctors, lawyers, and other professionals
You might also benefit from a bank statement home equity loan if you:
- Keep money in investment accounts rather than traditional bank accounts
- Receive income from royalties, tips, or bonuses
- Have a spouse or partner who contributes to the household finances
The key is having sufficient deposits and money flow to satisfy the lender’s requirements. As long as you can show adequate income you can likely qualify.
How Do Bank Statement Home Equity Loans Work?
Bank statement home equity loans function similar to other home equity loans, with a few key differences:
Qualifying
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You’ll provide 12-24 months of personal and business bank statements. The lender reviews deposits, not just account balances.
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Additional info like profit and loss statements may be required.
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Credit scores of 620+ are generally needed, with 700+ preferred.
Loan Details
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Loan amounts depend on your equity, but may be higher than conventional limits.
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Interest rates are typically higher than standard home equity loans.
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Lenders often require at least 10% equity in the home.
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Loan terms up to 30 years are possible.
Application Process
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Work with a broker to find bank statement lenders and compare loan offers.
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Gather all required documents and complete the application.
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If approved, you’ll go through the standard loan closing process.
Pros and Cons of Bank Statement Home Equity Loans
Bank statement home equity loans provide an opportunity for those with non-traditional income to leverage their equity. But they aren’t necessarily the best option for everyone. Consider the key pros and cons:
Pros
- May qualify based on bank statements rather than tax returns
- Potentially high loan amounts
- Available to borrowers with credit scores as low as 620
Cons
- Typically have higher interest rates
- Require at least 10% home equity
- Limited lender options compared to standard loans
- May have prepayment penalties
Carefully weigh the benefits against the higher costs. A bank statement loan makes sense for some borrowers, while others may be better off exploring alternatives.
What are the Alternatives?
Standard home equity loans and lines of credit (HELOCs) are the most common ways to tap home equity. You provide income documentation to qualify and get better rates than bank statement loans.
Other options like cash-out refinancing let you pull equity out when refinancing your mortgage. Family loans involve borrowing from relatives using your home as collateral.
Reverse mortgages allow seniors 62+ to convert equity into cash that doesn’t have to be repaid until they sell or move out. The loan costs are higher, but no monthly payments are due.
Tips for Getting a Bank Statement Home Equity Loan
If you’ve determined a bank statement loan is your best approach, here are tips to get the process started:
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Check your credit – Get reports from Equifax, Experian and TransUnion and correct any errors. Lenders may require 700+ FICO scores.
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Talk to a broker – Mortgage brokers have access to bank statement lenders. Discuss your situation to see if you may qualify.
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Gather documentation – Compile 2 years of bank statements, profit and loss statements, business licenses, and anything else the lender requests.
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Shop multiple lenders – Compare interest rates, fees, and loan terms from several potential lenders. A broker can help with this.
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Ask about fees – Bank statement loans often come with fees like origination charges. Make sure you understand all costs.
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Review loan offers – When you get pre-approvals, thoroughly review the terms before selecting a lender.
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Check home value – Get an appraisal to confirm your equity stake and how much you can borrow.
The Bottom Line
While bank statement home equity loans fill a need, they aren’t the right choice for everyone. If you can qualify for a conventional loan, the better terms will save you money over the long run.
But if your situation calls for alternative qualification methods, a bank statement HELOC or home equity loan may be your ticket to unlocking funds from your home’s equity. Just be sure to shop around with brokers and lenders to find the best rates and terms.
âBank Statement Home Equity Loans vs. HELOCs
When deciding between a bank statement home equity loan and a HELOC, consider your financial needs and preferences. Home equity loans are suitable for those who prefer fixed payments and a lump-sum payout, while HELOCs provide flexibility with variable rates and ongoing access to funds.
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Bank Statement Home Equity Line of Credit (HELOC)
A HELOC is another option for accessing your homes equity. Unlike a home equity loan, which provides a lump sum, a HELOC works more like a credit card, allowing you to borrow funds as needed up to a predetermined credit limit. Heres what you need to know:
- Bank Statement HELOC: Although extremely rare, some lenders offer HELOCs designed for self-employed individuals that rely on bank statements rather than traditional income documentation for approval.
- Variable Interest Rates: HELOCs typically come with variable interest rates, meaning your payments can fluctuate based on market conditions. While initial rates may be lower than fixed-rate options, they can rise over time.
- Revolving Credit: HELOCs are revolving lines of credit, so you can borrow, repay, and borrow again during the draw period, usually lasting 5 to 10 years.
Bank Statement Home Equity Program
FAQ
Do you have to provide bank statements for a home equity loan?
What is required for a bank statement loan?
Can I get a home loan with just bank statements?
What is the HELOC bank statement program?
What is a bank statement second mortgage or home equity loan (heloan)?
A bank statement second mortgage or home equity loan (HELOAN) could help you improve your financial situation, pay for large purchases, do home improvements, consolidate debt, and help your family.
What are bank statement mortgage loans?
These are what’s known as bank statement mortgage loans. Sometimes called a self-employed mortgage, these loans require lenders to look at your bank statements only to determine if you meet their qualifications for mortgage approval.
What is a home equity loan & how does it work?
Using a home equity loan to make home improvements on your home can help increase the property’s value and make the home more enjoyable to live in. Tappable equity is at an all-time high. A HELOAN can help you turn your house’s equity into cash without touching your low-rate first mortgage. What Is a Second Mortgage Bank Statement Loan?
Can you get a mortgage with a bank statement?
A bank statement loan allows you to qualify for a mortgage using bank statements rather than tax returns. It’s most often used by self-employed borrowers. Not all mortgage lenders offer bank statement loans. You might need to work with a mortgage broker to find one. If you qualify for a conventional loan, it’s likely a better option.
Why do mortgage lenders use bank statements?
Simply put, mortgage lenders use bank statements to verify your income and cash reserves to ensure you can repay your mortgage loan and cover your down payment and closing costs. Lenders also use your bank statements to verify where your money is coming from to ensure that it’s yours, rather than an additional loan that would need to be repaid.
What are the financial requirements for a home equity loan?
These requirements vary by lender and loan type, but the most common are income, cash on hand, credit rating, and debt-to-income ratio. Learn what financial requirements you must meet to qualify for a home equity loan and what documentation lenders want to see, such as proof of income, credit history, and tax returns.