For the 16.5 million self-employed workers who make up 10.4% of the U.S. workforce, securing home financing isn’t always straightforward. That’s where a bank statement home equity loan comes in handy – it’s a flexible option designed for people with non-traditional income to tap into their home’s equity without relying on W2s or tax returns.
With home equity levels reaching the highest level since 2008 in 2024 this type of loan offers a simple way to unlock cash for business growth, investments, or personal goals. Whether you have fluctuating income or complex finances, a bank statement home equity loan could be the perfect fit for you.
In this guide, we’ll be covering what you need to know about unlocking your home equity using a bank statement home equity loan. If your income doesn’t fit the traditional mold and you’ve been looking for a solution – keep reading!
What Is a Bank Statement Home Equity Loan?
A bank statement home equity loan allows you to unlock the equity in your home by using your bank statements to verify income rather than relying on traditional documents like W2s, pay stubs, or tax returns. This makes it a perfect option for self-employed individuals, business owners, or anyone with non-traditional income streams. Instead of focusing on your taxable income, lenders look at deposits in your bank account to see if you’re able to repay the loan, which makes it easier to qualify.
Bank statement loans as a mortgage option offer a tailored financing solution for self-employed professionals and independent contractors who struggle with traditional lending criteria. These innovative loan products recognize that many entrepreneurs and freelancers have robust financial capabilities that aren’t accurately reflected in standard income documentation.
These loans fall under the non-QM (non-qualified mortgage) category, which is designed for those who don’t meet the strict guidelines of conventional loans. Traditional mortgages have to follow rigid rules set by the Consumer Financial Protection Bureau (CFPB), whereas non-QM loans use alternative income verification methods tailored to unique borrowers. This flexibility makes bank statement home equity loans a valuable solution for non-traditional individuals who want to unlock their home equity.
The result? A more inclusive lending approach that bridges the gap between traditional income verification and the complex financial realities of modern self-employed professionals.
How Bank Statement Home Equity Loans Work
When it comes to a bank statement home equity loan, lenders check your income based on deposits into your bank account instead of using traditional income documents like W2s, pay stubs, or tax returns. Lenders usually review 12 to 24 months of your bank statements to get a clear picture of your cash flow. They’ll focus on consistent deposits while deducting certain expenses or ineligible income, then they’ll determine how much you can afford to borrow by calculating your average monthly deposit amount.
For anyone whose true earning potential isn’t fully reflected in standard documentation, this type of loan can help unlock home equity.
What Is Home Equity?
Home equity is the difference between your home’s current market value and the amount you still owe on your mortgage. You can calculate it by subtracting your remaining loan balance from your home’s value. For example, if your home is worth $400,000 and you owe $250,000, you have $150,000 in equity.
This equity can be “unlocked” with a home equity loan, which lets you borrow against your property’s value for things like renovations, investments, or other expenses. Lenders use your loan-to-value (LTV) ratio to determine how much you can borrow, which typically requires you to keep a portion of your home’s equity as a safety margin.
What Is A Home Equity Loan?
A home equity loan is a way to borrow money by tapping into the value of your home. It’s essentially a separate loan from your mortgage that’s backed by your home, where you get a lump sum of cash upfront and pay it back in fixed monthly payments over time.
The amount you can borrow depends on your home’s equity, which is the difference between its market value and the amount you still owe on your mortgage. Home equity loans are a popular option for funding big expenses like renovations, paying off debt, or even investing, which gives homeowners a way to put their hard-earned home equity to work.
Why Get a Bank Statement Home Equity Loan?
A bank statement home equity loan is a great way to access the cash you need with some added flexibility. Compared to traditional home equity loans that need extensive paperwork like W2s and tax returns, this option allows self-employed individuals, freelancers, and independent contractors to qualify by using just their bank statements as proof of income. It’s especially helpful for those with complex or non-traditional income streams who might not fit the mold of conventional lending.
Homeowners can strategically use these funds to:
- Purchase a vacation property, acquiring a new vehicle, or investing in additional real estate
- Streamline personal finances by consolidating high-interest debts into a single, more manageable payment
- Invest in personal and professional development, like funding a child’s education or launching a business venture
- Enhance living spaces through home renovations
Plus, this isn’t a refinance – your original mortgage stays intact, so you’re simply leveraging the equity you’ve built. With mortgage rates dropping from 7.79% to 6.54% between October 2023 and 2024, now could be the perfect time to explore this option.
Not to mention that the current economic landscape presents an unprecedented opportunity for homeowners. As of 2023, American homeowners collectively hold nearly $30 trillion in tappable home equity, averaging approximately $200,000 per household. This substantial financial resource represents more than just a number—it’s a potential catalyst for personal financial transformation.
Who’s an Ideal Candidate for a Bank Statement Home Equity Loan?
A bank statement home equity loan would be a great option for homeowners with significant home equity who could be but aren’t limited to:
- Entrepreneurs
- E-commerce Professionals
- Individuals With Multiple Streams of Income
- Influencers
- Retirees
- Freelancers
- Consultants
- Independent Contractors/1099
- Small Business-owners
- Self-employed Individuals such as Lawyers and Doctors
- Artists
- Real Estate Investors
- Truck Drivers/Uber/Lyft/Taxi
Qualification Requirements for a Bank Statement Home Equity Loan
The exact qualification requirements for a bank statement home equity loan depend on each lender and the criteria they choose to set. Generally speaking qualification requirements for a bank statement home equity loan usually include:
- Good credit score: Commonly a FICO of 620+ depending on the lender
- Proof of reserves: Lenders usually ask for 12-24 months worth of bank statements (personal or business)
- Sufficient home equity: Usually a minimum of 20% home equity depending on the lender
- Low debt-to-income ratio (DTI): Your monthly debt payments compared to your income should be low to demonstrate your ability to afford additional debt
- Home appraisal and proof of insurance: You might be required to show proof od homeowners insurance or a recent appraisal to determine the current market value of the home depending upon what the lender requires
Pros and Cons of a Bank Statement Home Equity Loan
Pros:
- Flexible income verification for borrowers with non-traditional income sources
- Allows you to unlock equity in your home
- Keeps your original mortgage intact without having to refinance – you can keep your rate!
- Predictable payments with fixed interest rates
- No tax returns, pay stubs or W2s needed
- Flexibility for use on different property types like primary, secondary or investment properties
- Lump sum of cash since home equity loans provide you with one lump sum
Cons:
- Slightly higher interest rates compared to traditional home equity loans
- A certain amount of equity typically needs to be maintained in the home
- Potential for fees or closing costs
- Foreclosure risk if you fail to pay your loan
Alternatives to a Bank Statement Home Equity Loan
If you’re looking to unlock your home equity, a bank statement home equity loan isn’t your only option. There are a couple of other ways to cash in on your built-up home equity, including:
- Bank Statement Cash-Out Refinances: A bank statement cash-out refinance replaces your existing mortgage while allowing you to withdraw a portion of your home’s equity as cash. Like a bank statement home equity loan, it uses bank statements to verify income, making it ideal for those with non-traditional income.
- Bank Statement HELOCs: A bank statement HELOC (Home Equity Line of Credit) lets you access your home’s equity as a revolving line of credit, which gives you the flexibility to borrow only what you need. It uses bank statements for income verification and is perfect for self-employed individuals seeking an alternative to lump-sum loans.
- P&L Refinance: A P&L (Profit & Loss Statement) refinance allows you to qualify for a loan using your business’s profit and loss statements instead of traditional income documents. This type of refinance was designed for business owners with fluctuating incomes, which offers flexibility for those with fluctuating business income.
- Traditional HELOC: A traditional HELOC (Home Equity Line of Credit) is structured just like a bank statement HELOC, but uses traditional income verification methods instead. This means you’ll need to provide the lender with documents like W2s, pay stubs, and/or tax returns.
- Traditional Home Equity Loans: A traditional home equity loan is a lump-sum loan that allows you to borrow against the equity in your home and acts like a second mortgage with fixed monthly payments. These loans require traditional income verification documents like W2s, pay stubs, and/or tax returns to qualify rather than just bank statements.
Bank Statement Home Equity Loan FAQs:
- What is a bank statement home equity loan?
A bank statement home equity loan is a type of loan where you can borrow against the equity in your home using bank statements to verify income instead of traditional documents like pay stubs, W2s or tax returns.
- How does a bank statement home equity loan differ from a traditional home equity loan?
In contrast to traditional home equity loans, which require a lot of income documentation, a bank statement home equity loan uses bank deposits to confirm your income.
- Who is eligible for a bank statement home equity loan?
Borrowers with non-traditional income, like self-employed individuals, freelancers, or contractors, and significant home equity are ideal candidates for a bank statement home equity loan.
- How are bank statements used to qualify for this type of loan?
Lenders analyze 12–24 months of bank statements to assess cash flow and determine income stability. Typically, they calculate an average monthly deposit to determine your monthly “income” and affordability.
- How many months of bank statements are typically required?
Most lenders require 12–24 months of bank statements to evaluate your financial consistency and eligibility for the loan. The exact number depends on the lender’s guidelines.
- What are the benefits of using a bank statement home equity loan?
- Flexible income verification for borrowers with non-traditional income sources
- Allows you to unlock equity in your home
- Keeps your original mortgage intact without having to refinance
- Predictable payments with fixed interest rates
- Is a bank statement home equity loan the same as a bank statement cash-out refinance?
No, a bank statement home equity loan is separate from your original mortgage, while a cash-out refinance replaces your existing mortgage. With a home equity loan, nothing changes with your primary mortgage.
- Can you get a bank statement home equity loan without a bank statement?
No, bank statements are required for qualifying since they’re the primary method used to verify income. Without them, lenders can’t evaluate your cash flow effectively.
- How does a bank statement home equity loan differ from a HELOC?
A bank statement home equity loan provides a lump sum with fixed payments, while a HELOC works like a credit line you can draw from as needed. HELOCs usually have variable rates, whereas home equity loans typically offer fixed interest rates.
