The Complete Guide to Refinancing for Self-Employed Individuals
Bank statement refinance loans have emerged as a valuable financial tool for self-employed individuals, freelancers, and others with non-traditional income sources. These loans offer a pathway to refinancing for those who might struggle to qualify for conventional mortgages due to their unique income situations. By using bank statements instead of traditional income documentation, lenders can get a clearer picture of a borrower’s financial health, opening up refinancing opportunities that might otherwise be out of reach. Let’s explore bank statement refinance loans, including pros and cons, qualifications, and some lenders who can help with a loan.
What is a Bank Statement Refinance?
A bank statement refinance is a method of refinancing a mortgage that uses bank statements to verify income instead of traditional tax returns or pay stubs. This process is particularly useful for refinancing for self-employed individuals, freelancers, or those with irregular income streams who may have difficulty qualifying for conventional refinancing options.
What are Bank Statement Refinance Loans?
Bank statement refinance loans are mortgage products that allow self-employed borrowers to use their bank statements as proof of income when applying for a refinance. Bank statement loans are designed to provide more flexibility in the refinancing process, especially for those who may not have traditional income documentation or whose tax returns may not accurately reflect their current financial situation.
How Bank Statement Refinance Loans Work
- Borrowers provide 12-24 months of personal or business bank statements to verify income.
- Lenders analyze these statements to determine average monthly income and cash flow.
- The loan amount and terms are based on this bank statement analysis rather than tax returns.
- Borrowers may need to provide additional documentation, such as proof of self-employment, business license bank statements, and a letter verifying that the borrower is an independent contractor on tax documents.
- Interest rates may be slightly higher than traditional refinance loans due to perceived higher risk.
- Loan-to-value ratios and credit score requirements may vary by lender.
Who Would Be Good Candidates for Bank Statement Refinance Loans?
- Self-employed borrowers
- Freelancers
- 1099 workers
- Independent contractors
- Small business owners
- Gig economy workers
- Commission-based professionals
- Real estate investors with rental income
- Seasonal workers with variable income
- Entrepreneurs with new or growing businesses
- Retirees with investment income
- Individuals with significant assets but limited regular income
- Those with a mix of traditional and non-traditional income sources
Refinancing For Self-Employed Borrowers
Self-employed borrowers often face unique challenges when seeking to refinance their homes, but bank statement refinance loans are the perfect option for refinancing for self-employed borrowers. Traditionally, securing a loan has been more difficult for this group due to their unconventional income structure. Many self-employed individuals struggle to access funds for home renovations, obtain lower interest rates, or consolidate debt through refinancing. This difficulty is compounded for those with seasonal or inconsistent income, as lenders typically prefer steady, predictable earnings.
The self-employed landscape is constantly evolving; many current self-employed individuals may have only recently transitioned from traditional employment, further complicating their financial history. Despite these hurdles, the number of self-employed Americans continues to grow. This highlights the need for more flexible lending options for refinancing for self-employed borrowers.
Lenders often consider loans to self-employed borrowers riskier, and the same is said for refinancing for self-employed borrowers. This leads to stricter requirements or higher interest rates. However, with the rise of alternative lending solutions like bank statement loans, self-employed borrowers now have more opportunities to overcome these obstacles and successfully refinance their homes, allowing them to take advantage of the benefits traditionally reserved for W-2 employees.
Requirements for Bank Statement Refinance Loans
Requirements for bank statement refinance loans depend on the lender and borrower’s circumstances. At Defy Mortgage, our bank statement loans have the following parameters:
- 620+ FICO score
- 90% maximum LTV
- $6MM maximum loan amount
- 12-24 months of bank statements (personal and business accepted)
- Interest-only option available
- No tax returns are necessary
Bank Statement Loans vs Traditional Mortgages
- Bank statement loans rely on bank statements to determine qualification, while traditional mortgages generally require extensive documentation, including W2s, pay stubs, and tax returns.
- Credit requirements are typically more relaxed for bank statement loans compared to traditional mortgages, offering greater flexibility for borrowers.
- The debt-to-income (DTI) ratio is much more flexible for bank statement loans than for traditional mortgages, allowing for a wider range of financial situations.
- Due to the higher perceived risk, bank statement loans often come with higher interest rates than traditional loans.
- Bank statement loans usually require a significantly higher down payment, often more than double that of traditional mortgages.
- Both types of loans offer similar term options, providing borrowers with various choices to suit their needs.
- The approval process for bank statement loans is typically faster due to less extensive documentation requirements, streamlining the overall borrowing experience.
Pros and Cons of Bank Statement Refinance Loans
Pros of Bank Statement Refinance Loans:
- No W2s, Paystubs, or Tax Returns: Bank statement refinance loans eliminate the need for traditional income documentation, relying instead on bank statements to verify income.
- Higher DTI Ratio: Some lenders may permit a higher debt-to-income ratio for bank statement loans, potentially allowing borrowers to qualify for larger loan amounts.
- Flexibility: Bank statement refinance loans can often be used for various property types, including primary residences and investment properties, offering borrowers more options.
- Higher Loan Limit: These loans may offer higher loan limits compared to some conventional loan products, allowing borrowers to refinance larger mortgage amounts
Cons of Bank Statement Refinance Loans:
- May Not be Your Only Option: Some borrowers who think they need a bank statement loan might still qualify for conventional refinancing, which could offer better terms.
- Higher Interest Rates: Due to the perceived higher risk, bank statement refinance loans often come with higher interest rates compared to traditional refinance loans.
- Less Common: Bank statement refinance loans are not as widely available as conventional loans, which may limit borrower options and make comparison shopping more challenging.
- Larger Down Payment: Lenders may require a larger down payment or more equity in the home for bank statement refinance loans to offset the increased risk.
Bank Statement Refinance Loans Alternatives
- Home Equity Line of Credit (HELOC): A HELOC allows borrowers to borrow against their home’s equity, providing a revolving credit line that can be drawn upon as needed. It typically offers flexible repayment terms and can be used for various purposes, including home improvements or debt consolidation.
- Home Equity Loan: Also known as a second mortgage, a home equity loan provides a lump sum payment based on the borrower’s equity in their home. It typically has a fixed interest rate and fixed monthly payments, making it a good option for those who prefer predictable repayment terms.
- Reverse Mortgage: Available to homeowners aged 62 or older, a reverse mortgage allows seniors to borrow against their home equity without making monthly mortgage payments. The loan is repaid when the homeowner sells the house, moves out, or passes away, making it a potential option for retirees looking to supplement their income.
Bank Statement Refinance Lenders
1. Quicken Loans (Rocket Mortgage)
Quicken Loans, now operating under the name Rocket Mortgage, is one of the largest mortgage lenders in the United States. While they are best known for their conventional and government-backed loans, they also offer bank statement refinancing for self-employed borrowers and others with non-traditional income. Their bank statement program typically requires 12 months of personal or business bank statements.
Rocket Mortgage is known for its user-friendly online platform and mobile app, which can make the application process more convenient for borrowers. They also offer a team of Home Loan Experts who can guide applicants through the bank statement refinance process and help them understand their options.
2. New American Funding
New American Funding is a family-owned mortgage lender that offers bank statement refinance loans as part of their portfolio of non-QM (non-qualified mortgage) products. They specialize in working with borrowers who have unique financial situations, including refinancing for self-employed borrowers and those with non-traditional income sources. New American Funding’s bank statement program typically requires 12-24 months of bank statements and offers competitive rates compared to other non-QM lenders.
The company prides itself on its personalized approach to lending, with loan officers who are trained to handle complex financial scenarios. They also utilize advanced technology to streamline the application and approval process, potentially reducing the time it takes to close on a bank statement refinance loans.
3. Carrington Mortgage Services
Carrington Mortgage Services is a lender that specializes in serving underserved markets, including those who may not qualify for traditional mortgage products. They offer bank statement refinance loans as part of their non-QM product line, typically requiring 12-24 months of bank statements to verify income for refinancing for self-employed borrowers and others with irregular income streams.
Carrington is known for its flexible approach to underwriting and its willingness to do refinancing for self-employed borrowers who have less-than-perfect credit. They also offer educational resources and personalized support to help borrowers understand their options and navigate the bank statement refinance process.
4. Defy Mortgage
Defy Mortgage is bringing some bold, innovative energy to the mortgage game for non-traditional borrowers. Their experienced team specializes in helping real estate investors build their empire and establish their legacy with tailored loan solutions customized to meet each investor’s unique needs. They break down barriers for both buying and refinancing, making the process smoother and more secure.
That cookie-cutter, one-size-fits-all approach? Not their style. Defy knows that access to the right mortgage can make or break a project. They’ve seen firsthand that the banks are rigid – many of Defy’s employees worked there for years. It’s why Defy was started – they are driven by a passion to challenge the status quo and create a new era of lending that puts the power in the hands of borrowers. Talk about setting new standards in the industry.
Defy’s CEO, Todd Orlando, is an experienced banker who isn’t afraid of defying the traditional in the financial services space. Recognizing that the number of self-employed individuals is at an all-time high, Defy offers 75+ creative loan programs to help non-traditional borrowers achieve their goals – and that includes DSCR, fix & flip loans, construction loans and more. And the biggest pro of all? They close fast and make it easy.
5. Caliber Home Loans
Caliber Home Loans is a full-service mortgage lender that offers a range of conventional, government, and non-QM loan products, including bank statement refinance options. Their bank statement program is designed for refinancing for self-employed borrowers and typically requires 12-24 months of personal or business bank statements to verify income.
Caliber Home Loans is known for its technology-driven approach to lending, with a user-friendly online application process and mobile app. They also have a network of local loan consultants who can provide personalized guidance throughout the refinance process, which can be particularly helpful for borrowers navigating the complexities of a bank statement refinance.
Bank Statement Refinance Loans FAQs
- What is a bank statement refinance?
A bank statement refinance is a method of refinancing a mortgage using bank statements to verify income instead of traditional documentation like tax returns.
- What is a bank statement refinance loan?
A bank statement refinance loan is a mortgage product that allows borrowers to use their bank statements as proof of income when applying for a refinance.
- How do bank statement refinance loans work?
Bank statement refinance loans work by using 12-24 months of bank statements to verify income and determine loan eligibility, instead of relying on tax returns or pay stubs.
- How long does a bank statement refinance loan take?
A bank statement refinance loan typically takes 30-45 days to close, similar to traditional refinances, but may vary depending on the lender and individual circumstances.
- Who is a bank statement refinance loan ideal for?
Bank statement refinance loans are ideal for self-employed borrowers, freelancers, or those with irregular income who may have difficulty qualifying for conventional refinancing options.
- What are the pros and cons of a bank statement refinance loan?
Pros include easier qualification for refinancing for self-employed borrowers, while cons may include higher interest rates and stricter requirements for down payments or credit scores.
- What are the alternatives to bank statement refinance loans?
Alternatives include traditional refinances, HELOCs, home equity loans, and reverse mortgages, depending on the borrower’s specific situation and needs.
- Who can help me get a bank statement to refinance the loan?
Mortgage brokers, non-QM lenders (including Defy Mortgage), and some traditional lenders offer bank statement refinance loans and can guide you through the application process.
