Business bank statement loans
Business bank statement loans are back thanking Mike loves to talk about this. I like I like finance topics for sure, and specifically this one. So as an agent, what you want to understand is there’s all types of different mortgages out there. And what we’ve kind of moved towards is, is since the 2008 financial crisis, most loans were going towards full documentation loans.
So what that means is a W-2 wage earner putting down all their income and fully documented that. And in looking at tax returns and all those items as a business owner, what you would most likely do is have income that comes in this number and then you would have write offs and expenses that would go along and then you would have a net income that is most likely lower than your gross income because you write things off and that becomes your taxable income.
And the reason you do that is because you want to pay less in income tax. But in doing so now you harm yourself on being able to qualify for a loan properly at the fullest possible rate. So there’s like it’s a double edged sword thing. And the reason this topic is important now is because as the economy is changing and there’s more self-employed people now than there ever has been in the pandemic has brought us different opportunities. But in doing those right, it changes how you would be able to finance and qualify for a mortgage in most cases.
So the business bank statement loan is how they would qualify you for your income and then they have a factor associated with it. Now, there’s going to be a few things that go along with this, that there’s going to be a lower LTV. So what that means is that you wouldn’t be able to borrow as much so that the loan is protected in the more the mortgage company is protected in the event of default, you’re putting more skin in the game to compensate for the lack of documentation.
And then what you’re also going to have is you have higher interest rates to reward them more. Most likely you’re going to have higher origination fees as well to offset this. Yeah, there’s more risk, right. But what happens is they eventually get done. So you’re looking at about a 70 percent LTV or loan to value ratio. In most situations, you’re looking at loans that would be not a problem to get up to two million dollars so that you could have that actual loan amount. And that would kind of be, for the most part, some of your upper limits.
Of course, you can get them larger, but those are some of the the upper limits. And the interest rates are going to generally be probably a point and a half higher than they would be for a traditional mortgage now a traditional mortgage at that price point and loan to value ratio.
So there’s just rough approximate because as you go up and you go from a conforming loan to a jumbo loan and a super jumbo. Right. There’s like different there’s different interest rates are just kind of take that into account when you’re thinking through it to accomplish this. But why it’s important for you is there’s tons of these people out there who have been on the sidelines and looking for different products, and some of them have done very well in the economy.
And they have money, but they don’t qualify. And a lot of them have been having to wait until they had all cash to be able to pay for the place. So imagine what that really means, right? Is they have this and then they probably have a reasonable income because they’re the owners of the business and then they’re qualified based on their bank statement and based on their industry.
They take a certain factor or percentage to qualify. So I don’t want to get way too into the weeds because people are probably like nodding off. But you shouldn’t be because this is super. If you have a I mean, if you know of someone that they think, you know, there’s a lot of people who drive everything off or whatever, it’s an option.
Yes. So what they do is they will most likely they take the full deposit into the bank account and then depending on the industry there, and they’ll take a percentage of that and figure on for expenses. And that would be for your
heat, your lights, your electric for for rent and overhead and for insurance. And like all types of things, marketing that you would do as a company and that becomes your income that they qualify you based on. And they would look at a track record twelve, twenty four, maybe even thirty six months of track record of the business bank statements and utilizing that as your income.
In doing so, the longer documentation you can provide of your stability of income, the more they feel comfortable with it and thus the lower the interest rate would possibly be. OK. So a lot of these people are like super thankful to be able to get these mortgages so that they can move forward, Sheriff, and this is a really good source of new business for you as an agent. Often these people might not be as educated on the product as you as one would think. So it is something that you would probably need to introduce to them and just have a conversation about it. Right. And you know what?
I would find out who’s who some lenders are that do this because I really wasn’t aware that they do this anymore.
Correct. So this is you know, I’m trying to introduce that. Right. And so if you have any questions about it, you can reach out directly to me. And I would be very, very happy to to address that with you and get you in touch with the proper people.
But basically just go out and rattle and look around and rustle up some people. And when you find them, then we can work through it and get to the right people depending on the location of it. The loan amounts are looking for what type it is, whether it’s a purchase or a refinance or whether it’s a new construction they’re building from scratch. Right. There’s all different things in different places that they should go to. So it really depends on the price and the terms that they’re looking for.
Is this scary scare me just because of what happened in 08, 09? I think it’s a bit different.
Yeah. So those are really, really crazy. The bank statement loan shows a history of the income coming in. Yeah, right. And then there are mitigating that could question Shana. So there are mitigating that with having more down payment and more skin in the game by the borrower. So now you’re we’re talking about this at 70 percent LTV and a track record of 12, 24, 36 months of the person earning this income and taking a factor off for expenses that’s relevant for their industry.
OK, if you get that number wrong dramatically, then that would be a big difference. Yeah, right. So if you were giving somebody credit for 50 percent of their income, but they’re in maybe they had a grocery store in the grocery store, has a profit margin of like five percent, then you’re like way off on the numbers with every sale coming through the register because you’ve got to buy the product. Right. So that would be like your assumption be way off. But assuming that you’re doing the right thing and maybe you’re talking about consultants that have certain expenses or agents like us or realtors.
Then that would be just to touch different. So dig into it. And no, I think it’s different because there is going to be a large amount of money down, which makes it that the default rate going to be lower. Where it gets scary is when all of a sudden the LTV approach is a much higher number and where the documentation for it is not with bank statements, but rather you just clearly stating in saying I’m like you’re writing on a piece of paper, I might still make that or fifty thousand dollars a month.
And I’m just like, you go. Right. So that would be a kind of a weird thing. And you’re like, I want 100 percent loan. And here’s my documentation is I signed a no like literally wrote a note and said, like, I make fifty thousand dollars. We saw this and that was a real thing and those were problematic. Yeah. So. All right. OK, I like that. It is. But let’s for now, let’s go sell tons of multi million dollar homes specifically done like that. Yeah. Thank you guys. Great topic. All right. Thank you very much. It’s about.