Bank Statement Loans… Not the Junk Loan You Might Think

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Filed under: Jumbo Loans

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Bank statement programs have been out for a while, but I’ve been getting more requests for them lately. I went through a period where I didn’t want to use bank statement programs because it seemed too similar to the subprime days.

I need to thank Walter Neil for helping shed some light a few years ago, showing me how we should be thinking about these programs.

Example of How You Can Save Money

I want to share a scenario: someone buying a million-dollar house with 30% down. I compare what they would have to pay in taxes to qualify for that mortgage on a full-doc loan vs. using bank statement programs and sticking with an aggressive tax plan.

To qualify for that $700,000 mortgage, most jumbo lenders are looking for a maximum of a 43% debt-to-income ratio. So, most people will need to make about $140,000 or more to qualify for that mortgage. If you earn that much and pay the full taxes, then you will likely pay somewhere around $35,000 for the state and federal income taxes. Most jumbo lenders require two years of history, which means you’ll need to pay that much in taxes two years in a row – which is about $75,000 total in taxes you’ll have to pay upfront.

Or, you can take a bank statement program if you have solid credit. Most of these programs have an interest rate difference that is about 1% higher. Assuming a mortgage of $700,000, it means your payment will be about $400/month higher. In 10 years, paying $390 more per month it works out to be $48,000 more in mortgage payments for going with the bank statement program.

But that also means that 10 years in, you’re still about $25,000 ahead because you didn’t spend all that money on taxes.

Does a Bank Statement Program Make Sense For You?

When they are used right, these bank statement programs can definitely make sense for people with an aggressive tax plan. If you can come up with the down payment and you have a strong business where we can use bank statements to qualify for the loans, it can make long-term financial sense to help you save on the tax money.

These programs are great for people who are self-employed and are having a hard time qualifying. If you or anyone you know is in this situation, reach out to me for more information.

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