Your Guide to Going From Self-Employed to Homeowner With a Colorado Bank Statement Loan
Dreaming of owning your own home in the Centennial State but non-traditional income holding you back? This is where Colorado bank statement loans can be a game-changer. Imagine qualifying for a home loan with your bank statements rather than mounds of paperwork that include different documents ranging from W2s to tax returns.
In this article, we’ll be covering everything you need to know to get a Colorado bank statement loan. Don’t let your alternative income stop you from becoming a homeowner – let’s get into it!
What Is a Bank Statement Loan?
A bank statement loan is a type of non-QM loan (non-qualified mortgage) that allows you to qualify by using your bank statements instead of traditional income documents like W2s, tax returns, or pay stubs. This gives individuals with non-traditional income an opportunity to achieve their dream of homeownership.
If you’re unfamiliar with non-QM loans, they’re simply loans that aren’t required to follow the strict lending standards set by the Consumer Financial Protection Bureau (CFPB). This means that non-QM lenders have the freedom to set their own lending criteria, making these loans much more flexible than conventional loans.
How Do Bank Statement Loans Work?
Typically, bank statement lenders ask for your most recent bank statements from the past 12 to 24 months. Then, they calculate your monthly average deposit by adding up the total deposits for the period and dividing it by the number of months. Using this number, they can then determine how much “home” you can afford.
Who Would Be an Ideal Candidate for a Colorado Bank Statement Loan?
Realistically, anyone that has a bank account with regular deposits can get a bank statement loan – even individuals with a traditional W2 job. However, these loans were created to help those who don’t have access to any traditional income documents, like:
- Entrepreneurs
- Gig workers
- E-commerce Professionals
- Individuals With Multiple Streams of Income
- Influencers
- Freelancers
- Consultants
- Independent Contractors/1099
- Small Business-owners
- Self-employed Lawyers and Doctors
- Artists
- Real Estate Investors
- Truck Drivers
Bank Statement Loans vs. Conventional Loans
The main difference between bank statement loans and conventional loans is the way income is verified. As the name suggests, bank statement loans use the borrower’s bank statements to evaluate their income and ability to repay the loan. In contrast, conventional loans rely on traditional income documents like W2s, pay stubs, and tax returns, along with asset and debt, to determine whether the borrower can repay the loan.
Colorado Bank Statement Loan Requirements
Since bank statement loans are non-QM loans, every lender can set their own criteria. To give you an idea of what you might need to qualify for a bank statement loan, here are our requirements at Defy:
- Minimum FICO score of 620+
- 12-24 months worth of bank statements (personal or business)
- Maximum LTV of 90%
- Maximum loan amount of $6M
- Interest-only options available
- No tax returns or traditional income documents required
Pros and Cons of Getting a Colorado Bank Statement Loan
Pros:
- Qualify using your bank statements
- No tax returns or any other traditional income documentation required
- Provides an alternative path to homeownership for individuals with non-traditional income
- Faster approval process
- Allows a wider range of people to qualify for a mortgage
Cons:
- Limited availability
- Slightly higher interest rates
- May have higher down payment requirements
Colorado Bank Statement Loan Alternatives
While bank statement loans can be a great alternative path to homeownership, it might not be for everyone. The good news is that there are plenty of non-QM loan options to choose from based on your unique needs. Here are some alternatives to consider:
- Profit & Loss (P&L) Loans: These loans allow you to qualify with your business’ P&L statements instead of your personal income or bank statements. This is a great option for business owners.
- Asset Depletion Loans: These loans allow you to use your liquid assets to qualify for a mortgage. The assets are “depleted” over time to cover the monthly loan repayments. This is a great option for individuals who have significant liquid assets, but have little to no documented income.
- Debt-Service Coverage Ratio (DSCR) Loans: These loans allow you to use your property’s rental income to qualify for a mortgage. Lenders use the DSCR metric to determine whether the property can “pay for itself.” This is a great option for real estate investors or anyone interested in purchasing an income-generating property to expand their investment property portfolio.
If you’re still unsure of which loan type would work best for you, contact us at Defy Mortgage and we can help! We offer all of these loan options and more to make sure there’s a tailor-made loan solution just for you.
Colorado Bank Statement Loan FAQs:
- What is a bank statement loan?
A bank statement loan is a type of mortgage that uses your bank statements (usually 12 to 24 months’ worth) to see if you qualify for a home loan instead of traditional income documents like W2s, pay stubs, and tax returns. Bank statement lenders calculate your average monthly deposit to determine the maximum loan amount you can afford to repay each month.
- Are bank statement loans non-QM?
Yes! Bank statement loans are non-QM loans (non-qualified mortgages), which simply means that they don’t have to follow the strict lending standards set by the Consumer Financial Protection Bureau (CFPB). This allows non-QM lenders to create their own qualification criteria, making non-QM loans much more flexible for non-traditional borrowers.
- Where can I get a Colorado bank statement loan?
Bank statement loans are typically offered by private mortgage lenders (like Defy!) since they’re non-QM and often seen as alternative lending products.
- Can I only get a Colorado bank statement loan if I’m self-employed?
No! Anyone who can provide their bank statements can potentially qualify for a bank statement loan. Even if you have a traditional W2 job, you can still get a bank statement loan.
- What do I need to qualify for a Colorado bank statement loan?
Qualification requirements for bank statement loans vary by lender. To give you an idea of what you might need, these are our requirements at Defy:
- Minimum FICO score of 620+
- 12-24 months worth of bank statements (personal or business)
- Maximum LTV of 90%
- Maximum loan amount of $6M
- Interest-only options available
- What are the interest rates for bank statement loans?
Interest rates for bank statement loans vary based on the lender, your credit score, and the current market rate. They fluctuate in a similar way to standard mortgage rates, but you can expect them to be slightly higher. Despite a slightly higher rate, bank statement loans provide an alternative path to homeownership that some non-traditional borrowers wouldn’t have otherwise had.
- Can I get a bank statement loan with no down payment?
While not impossible, you most likely won’t be able to get a bank statement loan with no down payment. Most lenders require a down payment as part of their bank statement loan requirements.
- What’s the minimum down payment required for a bank statement loan?
The minimum down payment required depends on the lender. You can expect to put down anywhere between 10-25%.
- Can I get a bank statement loan with bad credit?
Bank statement loans typically have more flexible credit score requirements than conventional loans, but you’ll still have to meet the minimum credit score set by the lender to qualify. If you have bad credit, we recommend doing your research to find a lender that may be more accepting of your credit score.
- What are the minimum credit score requirements to qualify for a bank statement loan?
Minimum credit score requirements depend on the lender. At Defy, we require a minimum credit score of 620 or above to qualify for a bank statement loan.
- What are some alternatives to Colorado bank statement loans?
Some bank statement loan alternatives include P&L (profit & loss) loans if you’re a business owner, asset depletion loans if you have significant liquid assets with little to no income, or DSCR (debt-service coverage ratio) loans if you’re a real estate investor.
