Bank statement loans, also known as self-employed mortgage loans or non-conforming loans, are a type of mortgage loan specifically designed for self-employed individuals who may not have traditional income documentation or may have fluctuating income. While most conventional loans require borrowers to provide W-2 forms and pay stubs as proof of income, bank statement loans allow borrowers to use their personal or business bank statements as proof of income.

These loans are often sought after by self-employed individuals, freelancers, gig economy workers, small business owners, and entrepreneurs, as they can provide an alternative solution when they cannot meet the strict income verification requirements of traditional mortgages. Bank statement loans consider a borrower’s cash flow from their bank statements rather than relying solely on tax returns or job history.

The main advantage of bank statement loans is that they provide flexibility in the approval process. Instead of relying on traditional income documentation, lenders analyze the applicant’s bank statements over a specific period, usually 12 to 24 months, to determine their average monthly income. This approach allows borrowers with non-traditional income sources or irregular earnings patterns to be considered for a mortgage loan.

However, it is important to note that bank statement loans often come with higher interest rates compared to traditional loans. Since they carry more risk for lenders due to the limited documentation, the interest rates can be slightly higher to compensate for that risk. Additionally, these loans typically require a larger down payment and may have stricter credit score requirements.