The Bank Statement Mortgage

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Business Bank Statements can be used to calculate your monthly income.  Generally, 70% to 30% of your business account deposits over a 12 to 24 month period will be used to calculate your monthly income.  You can choose whether to use 12 or 24 months. 

The exact percentage of deposits used will be determined on a case by case basis and will largely depend on the type of business you own.  You will provide a Business Narrative outlining the business cash-flows & expenses associated with your business/industry type.  We can provide the business narrative form for you to complete.

The most common standard is to use 50% unless your CPA can state that your actual expenses are less via an expense statement prepared and signed by the CPA.  See the CPA Prepared Expense Statement section below. 

The following requirements apply for all business bank statement transactions:

• A minimum of 25% ownership in the business is required;
• Borrowers with less than 50% ownership that are not a managing member are ineligible.
• Declining income will require a Letter Of Explanation.
• Wire transfers and transfers from other accounts must be documented or excluded from the calculation.
• Statements should show a trend of ending balances that are stable or increasing over time. Decreasing or negative ending balances must be explained.
• Borrowers using rental income as their primary source of income must utilize Business Bank Statements to qualify.
• Short term rental income is allowed.

Personal Bank Statements can be used instead of business bank statements. 100% of the deposits averaged over a 12 or 24 month period can be used to calculate income under the following guidelines:

• 12 or 24 months complete personal bank statements from the same account (transaction history printouts are not acceptable).
• Minimum 25% business ownership is required.
• No more than 3 separate bank accounts may be used (combination of business and personal is prohibited unless income is being used from multiple businesses and each account represents income from a separate business. 
• All deposits greater than 50% of the monthly deposit average will require a source and explanation.
• Transfers between personal accounts may be excluded.
• Transfers from a business account into a personal account are acceptable. 3 months of recent business bank statements will be required to establish a history of transfers. 
• Borrowers who receive rental income as a secondary income source may utilize Business or Personal Bank Statement Documentation.  A rental lease for all properties generating rental income as well as 6 consecutive months proof of receipt of rental deposits into a personal or business account will be required. Final income for each property will be calculated at 75% of the lease amount after sourcing 6 months of deposits.
• Short term rental income is allowed.   

You can also use Business Bank Statements in combination with a Profit & Loss Statement prepared by your CPA which states your net income over a 12 or 24 month period.  This will eliminate the need for a Business Narrative or CPA prepared expense statement to determine the percentage of deposits used to calculate your monthly income.

You will still submit 12 or 24 months of business bank statements, depending on the period covered by your Profit and Loss Statement ("P&L").  But the statements will only be used to validate the P&L.  You can choose whether to provide a 12 month or 24 month P&L.  

The following documentation is required:

• 12 or 24-months complete business bank statements from the same account (transaction history printouts are not acceptable). No more than 3 different business accounts may be used.
• The P&L statement must cover the same time period as the bank statements provided.  The P&L can cover either 12 or 24 months.
• Personal bank accounts addressed to a DBA, or personal accounts with evidence of business expenses must be treated as business accounts for qualification.
• P&L must be signed by the CPA
• CPA must review the business financial statements or working papers provided by the borrower.
• The CPA may not be related to the borrower or associated with the borrower’s business.
• The Gross revenue listed on the P&L Must be within 10% +/- of the total qualified deposits. 

Your bank statements can be combined with a CPA Prepared Expense Statement in order to determine the percentage of deposits that will be used to calculate your monthly income.

The expense statement must meet the following criteria:

• The expense statement must be prepared and signed by an eligible third-party (CPA, licensed Tax Preparer, Tax Attorney) specifying business expenses as a percentage of the gross annual sales/revenue.
• The CPA must attest that they have filed the most recent 2 years business tax returns, are not related to the borrower, and are not associated with the borrower’s business.
• The CPA must confirm the borrower’s ownership percentage. 

Net income from the Expense Statement is calculated by determining the total deposits per bank statements (minus any ineligible deposits) averaged over 12 or 24 months and then multiplied by the expense percentage provided by the CPA. That number is then subtracted from the total monthly average deposit amount.  

• 30 year fixed rate mortgage with no prepayment penalties
• 40 year fixed rate mortgage with no prepayment penalties
• Adjustable Rate mortgage with no prepayment penalties
• Interest only options available
• Loan Amounts to $5m

                            RESERVES

In addition to the down payment and closing costs, the Buyer will have to show they have enough funds in their account(s) to cover at least 3 months of mortgage payments including principal, interest, property taxes, homeowners insurance, and association/condo fees (if applicable).  Required reserves will depend on the loan amount as follows:

• $150,000 - $500,000 = 3 months
• $500,000 - $999,999 = 6 months
• $1,000,000-$1,499,000 = 9 months
• $1,500,000+ and all Second Homes = 12 Months.

• A 36 month history of using credit in the U.S. with 3 tradelines that have been reporting payments/usage for 12+ months and have been active some time in the last 12 months; OR
• 2 tradelines that have been reporting payments/usage for 24+ months with some activity in the past 12 months.
• A tradeline is typically a credit card, personal loan, or car loan.  But some lenders will allow you to use other accounts as tradelines such as cable, utility, or cellphone accounts.
• If a complete credit history is not available you may be able to supplement your credit history by providing a history of paying rent on time.  This can be provided via a verification from the landlord or through other sources.  
• A credit score of at least 600 is required for most lenders.