Understanding the Self-Employed Bank Statement Program: A Game Changer for Self-Employed Borrowers

Navigating the world of home loans as a self-employed individual can often feel like an uphill battle. Traditional mortgage programs typically require proof of income through W-2 forms, pay stubs, or tax returns. But for those who don’t have a regular paycheck or work as independent contractors, these traditional forms of income documentation simply don’t work. That’s where the Self-Employed Bank Statement Program comes into play—a flexible and innovative way for self-employed borrowers to qualify for a mortgage.

In this blog, we’ll dive into what the Self-Employed Bank Statements Program is, how it works, and who can benefit from it.

What is the Self-Employed Bank Statement Program?

The Self-Employed Bank Statement Program is designed specifically for self-employed individuals who may have difficulty qualifying using traditional income documentation methods. Instead of relying on W-2 forms or tax returns to prove income, this program allows borrowers to use their bank statements as proof of their self-employment income.

This option provides flexibility for borrowers who may take full advantage of the U.S. tax code, writing off business expenses and deductions that lower their taxable income. As a result, their tax returns may not accurately reflect their true earnings. With bank statements, however, the full picture of a borrower’s financial health can be revealed, including income from deposits made into personal or business accounts.

How Does It Work?

Under the Self-Employed Bank Statement Program, borrowers submit personal or business bank statements to document their income. Kind will review a 12-24 month history of these bank statements to determine the borrower’s average monthly income based on the deposits.

If Personal Bank Statements borrower must own at least 20% of the business.  Business Bank Statements, borrower must own at least 25% of the business.

Co-mingled accounts may also be used if the borrower owns 100% of the business. A co-mingled bank statement refers to a personal account used by the borrower for both business and personal transactions.

Combining Self-Employed Income with Other Sources

The beauty of this program lies in its flexibility. It allows for income documented via bank statements to be combined with other forms of full documentation. For example, if the borrower is married and their spouse is employed as a wage earner, their spouse’s W-2 income can be included alongside the self-employed income. 

In these cases, no tax returns and no 4506C are required for the self-employment income.  

This program will also allow the use of asset depletion.  

Why Is the Self-Employed Bank Statement Program Ideal for Some Borrowers?

Many self-employed individuals face challenges when it comes to securing a mortgage. Their tax returns often reflect a lower income due to business deductions, even though their actual income may be higher. The Self-Employed Bank Statement Program addresses this gap by allowing lenders to look at a more accurate reflection of income based on actual deposits rather than tax filings.

Benefits of Bank Statement Loans

1. Flexibility: The program allows for personal and business bank statements to be used, which gives more leeway for self-employed individuals to prove their income.

2. No Tax Return Required: For self-employed borrowers, tax returns can often be misleading due to business expenses and deductions. This program allows them to avoid submitting tax returns, which would likely understate their actual income.

3. Combining Income Sources: If you’re a self-employed borrower who has wage earner income from a spouse, you can combine this income with your self-employment income to increase your overall eligibility.

4. No More Complicated Tax Documents: Many self-employed individuals struggle with providing complicated tax documents. The Self-Employed Bank Statement Program simplifies the process by using easily accessible bank statements.

Who is Eligible?

The Self-Employed Bank Statements Program is exclusively available to self-employed borrowers. This includes freelancers, business owners, 1099 workers, and anyone who has a non-traditional income structure. However, to be eligible, borrowers must demonstrate a strong history of deposits in their bank accounts over the last 12 to 24 months.

This program is ideal for those who may not have a typical salaried job or whose income is difficult to document through traditional means. If you’re a self-employed professional, this is the loan program that can help you access the funds you need for purchasing a home, without the stress of traditional income documentation.

Final Thoughts

The Self-Employed Bank Statements Program opens the door to homeownership for many self-employed individuals who have previously struggled with the traditional mortgage application process. By offering a more flexible and accessible way to qualify, this program acknowledges the unique nature of self-employment and provides a solution that fits modern-day working conditions. This program is available for primary, investment and second home properties.  

Whether you’re a business owner, a freelancer, or someone with 1099 income, this program could be the key to getting approved for a mortgage without having to jump through the hoops of tax returns and complicated paperwork.

Please contact your Kind Lending Account Executive for further information on assisting your self-employed borrower.

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