Tennessee Bank Statement Loans: The Complete Guide

A photo of Chattanooga, TN, a great place to buy a home and get a Tennessee bank statement loan.

Everything You Need to Know About Bank Statement Loans in Tennessee

Ever dreamed of owning a home in Tennessee, but worried about all of the income documents that traditional lenders ask for? This is where Tennessee bank statement loans can be a lifesaver. Nashville, Tennessee boasts the 15th largest population of self-employed workers in the US, according to the Chamber of Commerce. If you’re self-employed or own a business, it can be difficult to provide documents that properly reflect your income. 

In this guide, we’ll be going over everything you need to know about getting a Tennessee bank statement loan. 

What is a Bank Statement Loan?

Usually, traditional mortgage lenders rely on traditional income documents to verify your income for a home loan. However, this can be a challenge for self-employed individuals, freelancers, or those with non-traditional income streams. Here’s where bank statement loans come to the rescue. 

A bank statement loan is a type of mortgage where the lender evaluates your eligibility mainly using your bank statements rather than traditional income documentation such as tax returns, W2s, or pay stubs. Instead of relying on these traditional income verification methods, bank statement loans require you to submit several months of bank statements to show the lender your cash flow and ability to repay the loan. Bank statement lenders analyze these statements to calculate your average monthly income based on deposit amounts to determine how much you qualify for. Simply put, bank statement loans provide an alternative financing option for those with diverse income sources, offering accessibility to those who have chosen to forge their own path straying from the traditional mold. 

A man is sitting at a desk, calculating the average monthly deposit amount for a Tennessee bank statement loan.

Are Bank Statement Loans Non-QM?

Yes, bank statement loans are considered to be non-QM loans. Non-QM is short for non-qualified mortgage, which merely means that the loan isn’t confined to the lending standards set by the Consumer Financial Protection Bureau (CFPB) that conventional loans have to follow. This allows non-QM lenders to come up with their own lending criteria, therefore making home loans more accessible to the underserved market of individuals who can’t qualify for a traditional mortgage. 

Bank statement loans are not the only type of non-QM loan available. The term “non-QM loan” is actually an umbrella term that covers several different loan options and bank statement loans are just one of them. The different non-QM loan options cater to the various needs of underserved borrowers who may not be able to qualify for conventional loans. Some other non-QM loan options include DSCR loans, interest-only options, asset depletion loans, P&L loans, and more that we’ll cover later on in this article. 

Who Would Be a Good Candidate for a Tennessee Bank Statement Loan?

While technically anyone who has a bank account with regular deposits can potentially qualify for a Tennessee bank statement loan, they can be especially helpful for: 

  • Gig workers 
  • Entrepreneurs 
  • E-commerce Professionals 
  • Individuals With Multiple Streams of Income
  • Influencers
  • Freelancers 
  • Consultants
  • Independent Contractors/1099
  • Small Business-owners
  • Self-employed Individuals such as Lawyers and Doctors
  • Artists 
  • Real Estate Investors
  • Truck Drivers   
  • Bad Credit Borrowers

Bank Statement Loans vs. Conventional Loans

When comparing bank statement loans with conventional loans, one of the main differences is the way that income is evaluated for qualification requirements. As we’ve covered in previous sections of this article, bank statement loans use several months worth of bank statements to determine whether someone is eligible for a loan. In contrast, conventional loans use traditional income documents like pay stubs, W2s, and tax returns to evaluate eligibility. 

Because of these different methods, while a bank statement loan is considered to be a non-QM loan, a conventional loan is considered to be a QM (qualified mortgage) loan. The way that income is verified for a conventional loan falls within the lending guidelines set by the Consumer Financial Protection Bureau. 

Interest Rates for Tennessee Bank Statement Loans

The interest rates for bank statement loans can vary based on several factors. These factors include your financial profile, the lender you choose, and current market rates. Similar to the 30-year fixed mortgage rates you might be able to find online, bank statement loan interest rates will rise and fall in parallel because of the fluctuations in the market. 

It’s important to note that bank statement loan interest rates may be slightly higher than the rates for a conventional loan. However, this slight difference may be worth it for the alternative path to homeownership that might not otherwise be available to individuals who forge their own path outside of the traditional career path. 

A graph to indicate the interest rate fluctuations for Tennessee bank statement loans.

Qualification Requirements for Tennessee Bank Statement Loans

Since bank statement loans are considered to be a non-QM loan and lenders aren’t required to follow the strict lending standards set by the Consumer Financial Protection Bureau, each lender can set their own qualification requirements. These requirements may vary significantly between lenders because it ultimately comes down to each individual lender’s risk tolerance. While we can’t tell you what other lenders require, to give you a better idea of what may be required, we’ve listed our bank statement loan requirements at Defy Mortgage: 

  • Minimum FICO score of 620+
  • 12-24 months worth of bank statements
  • Maximum LTV of 90% 
  • Maximum loan amount of $6M
  • Interest-only option available

Pros and Cons of Getting a Tennessee Bank Statement Loans

Pros:

  • Provides an alternative path to homeownership
  • Focuses on cash flow from bank statements
  • No traditional income documents required, including tax returns
  • Potentially higher loan limits
  • Typically faster approval process

Cons:

  • Limited availability
  • Can have slightly higher interest rates
  • Larger down payment may be required

Top Tennessee Cities for Bank Statement Loans

Tennessee bank statement loans are designed for self-employed individuals or those who have difficulty proving their income. So, it’s unsurprising that they’re most popular in cities where there’s a relatively high proportion of self-employed individuals and small business owners. Taking this factor into consideration, here are the top Tennessee cities for bank statement loans:

  • Nashville
  • Knoxville
  • Chattanooga
  • Memphis
  • Franklin

Alternatives to Tennessee Bank Statement Loans

If you’re self-employed, looking for a mortgage and are still not sure if Tennessee bank statement loans are the right option for you, here are a few other loan options you could consider instead: 

  • Profit & Loss (P&L) Loans: These loans use your business’ P&L statements to determine eligibility. Perfect for business owners. 
  • Asset Depletion Loans: These loans use your liquid assets to determine eligibility. Lenders will calculate how much you can afford each month by dividing the value of your liquid assets by the number of months in the loan term. Perfect for high-net-worth individuals, retirees, and anyone else that has significant liquid assets with low or no documented income. 
  • DSCR Loans: These loans are meant for income-generating investment properties and use the property’s income to determine eligibility. Rather than use your personal income, the DSCR calculation considers whether the property’s income can sufficiently cover its debt payments. Perfect for real estate investors or anyone looking to purchase a rental property. 
  • Interest-Only Options: These loans have an initial period at the beginning of the term where you only have to pay the interest portion rather than both interest and principal. During this initial period, the monthly mortgage payments are much lower than what they would typically be. Perfect for real estate investors, individuals who expect their income to increase in the future, and anyone who may want to redirect the monthly difference to other investments. 

Tennessee Bank Statement Loan FAQs:

  1. What are bank statement loans?

Bank statement loans are mortgages that use bank statements to evaluate your eligibility criteria rather than traditional income documents like pay stubs, W2s, and tax returns. 

  1. Who could qualify for a bank statement loan?

Although they were designed for self-employed individuals and entrepreneurs, bank statement loans can be a great option for a diverse population of people. Anyone that has a bank account with regular deposits can realistically qualify for a bank statement loan, but they’re typically ideal for those who have difficulty proving their income. 

  1. What’s the difference between a bank statement loan and a conventional loan?

Bank statement loans evaluate your eligibility using bank statements and your average monthly deposits, whereas conventional loans rely on traditional income documentation such as pay stubs, W2s, and tax returns. 

  1. How much do I need for a bank statement loan down payment?

The exact amount you’d need for a bank statement loan down payment may vary, but you can expect to have to put down anywhere between 10-25%. 

  1. Can I get a bank statement loan without a down payment?

While not impossible, it’s very unlikely that you can get a bank statement loan without a down payment. Most lenders will require a minimum percentage down due to their maximum LTV limits. 

  1. What are the interest rates for bank statement loans?

Bank statement loan interest rates can vary based on factors like your borrower profile, the lender, and current market conditions. Although you can expect the rates to be slightly higher than conventional rates, this small difference may be worth it since bank statement loans open up the door to homeownership when it wouldn’t otherwise be possible. Similar to conventional rates, bank statement rates tend to rise and fall based on market factors. 

  1. What do I need to qualify for a bank statement loan?

Each lender will have their own specific requirements for what you’ll need to qualify for a bank statement loan. To give you an idea of what you might need, here’s what we require at Defy:

  • Minimum FICO score of 620+
  • 12-24 months worth of bank statements
  • Maximum LTV of 90% 
  • Maximum loan amount of $6M
  • Interest-only option available
  1. Do I need tax returns to qualify for a bank statement loan?

No, you do not need tax returns to qualify for a bank statement loan. 

  1. What documents do I need to apply for a bank statement loan?

Depending on your situation, lenders may ask for different forms of documentation to assess your bank statement loan eligibility. However, the basic documents you’ll need are bank statement loans for the specified amount of months and identification. 

  1. What credit score do I need to qualify for a bank statement loan?

Every lender sets their own credit score criterion, but at Defy, we require a minimum FICO score of 620+. 

  1. Is it possible to get a bank statement loan with bad credit?

While difficult, it may be possible to get a bank statement loan with bad credit depending on the lender you choose and their specific requirements. 

  1. What other loans could I qualify for if I’m self-employed?

If you’re self-employed, you might be eligible for an asset depletion loan, a profit & loss (P&L) loan, or a DSCR loan. Each of these options don’t require any traditional income documents. 

  1. Are bank statement loans available in other states besides Tennessee?

Yes! Bank statement loans are available in most US states like Florida, California, Texas, Georgia, and more. 

  1. Are bank statement loans and P&L loans in Tennessee the same?

While similar in nature, bank statement loans and P&L loans in Tennessee are different. Bank statement loans use personal or business bank statements as a qualification requirement, whereas P&L loans use business P&L statements instead. Anyone with a bank account that receives regular deposits can potentially be eligible for a bank statement loan, but only business owners can be eligible for a P&L loan. 

  1. What lenders offer Tennessee bank statement loans?

Bank statement loans are typically offered by alternative lenders, like us! If you’re interested in getting a Tennessee bank statement loan or want to explore your alternative home financing options, contact us today

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