Colorado is one of the most inclusive states in the Mountain West region of the United States. People from all over the country migrate to the state for its nondiscrimination laws, equal opportunities, and beautiful landscapes.
The housing market in Colorado is also thriving, with various housing types available for all lifestyles. From condos overlooking downtown Denver to single-family homes with vast land backed up to the Rocky Mountains, finding your dream home is a reality here.
Many self-employed individuals choose Colorado for its booming economy. However, self-employed borrowers may find obtaining traditional loan financing more difficult. A bank statement loan can be a great way for Colorado residents to purchase a property.
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Bank Statement Loans: Proving Your Income, Your Way
Bank statement loans allow those with non-traditional sources of income to qualify for a mortgage. Most options require borrowers to verify income using pay stubs and W-2s, buyers without these forms have historically found it difficult to purchase properties. A bank statement loan allows buyers to verify their income using bank statements in lieu of these other options.
Personal bank statements reflect an individual’s income and expenses, with lenders typically reviewing 12-24 months of statements to calculate the average monthly income. In contrast, business bank statements show a business’s income and expenses. When using these for a loan, lenders may consider a percentage of the business’s gross revenue as the borrower’s income, accounting for business expenses.
The bank statement program works similarly to a traditional mortgage, except that the borrower can use other income documentation to demonstrate their ability to pay the mortgage payments.
Benefits of Bank Statement Loans
A bank statement loan can offer self-employed individuals access to more home loan options. Bank statement loans offer the following benefits.
Ideal for Self-Employed Borrowers
A bank statement loan is one of the best home loan options for self-employed individuals. Although self-employed people may not always have access to W-2s or tax returns, most will have proof of income via personal or business bank statements. This makes bank statement loans a great option for small business owners, contractors, freelancers, or gig workers.
No Tax Returns Required
With many bank statement loans, tax returns aren’t required. Self-employed borrowers can qualify for a home loan using bank statements rather than tax returns.
Flexible Underwriting Guidelines
A bank statement loan typically offers more flexible underwriting guidelines than traditional home loans. Lenders accept bank statements to verify income and may also allow for a higher down payment to offset a lower credit score.
Competitive Interest Rates
Bank statement loans can offer more competitive interest rates than traditional loans. However, as with any loan type, it’s important to work with a knowledgeable mortgage lender to secure the best interest rates.
Can Be Used for Primary Residences, Second Homes, and Investment Properties
A bank statement home loan can be used to purchase different property types in Colorado. Whether you’re hoping to buy a permanent residence or a second home for vacation, a bank statement loan may be a great option. Additionally, it can be used to purchase investment properties.
Fast Processing
A bank statement loan can be processed quickly, sometimes faster than a traditional loan. This is because money lenders can typically verify income much faster using business and personal bank statements.
How Colorado Bank Statement Loans Work
A bank statement home loan works similarly to a traditional mortgage but does not require proving income via W-2s and pay stubs. Instead, lenders verify income and determine the loan amount based on recent bank statements.
Bank statement borrowers will choose a lender, submit a loan application, and complete the underwriting process. During underwriting, a borrower must demonstrate that they’re in a good financial situation that allows them to cover the monthly mortgage loan payments.
A pre-approval tells sellers that the borrower is likely to be approved for a mortgage and for how much. With this information, you can begin shopping for a home in Colorado. Once you submit an offer and it is accepted, you’ll work with your choice of lender to complete the application process.
How Many Months of Bank Statements Are Typically Required
While it depends on the lender, many require 24 months of bank statements to qualify for a bank statement loan. Some lenders may require as little as 12 months, depending on the rest of the loan application details.
How Income Is Calculated
Income for a bank statement loan is calculated based on a monthly average. Lenders add up all monthly deposits over a 12—or 24-month period and then divide it by the number of months used. This gives them an average monthly income, which is what they base their loan approval or amount on.
What Types of Bank Accounts Are Accepted?
While it depends on the lender, most accept business and personal bank statements.
Bank Statement Loan Requirements
To qualify for a bank statement loan, you will need the following:
- At least a 620 credit score
- A 10% down payment
- A maximum DTI ratio of between 45% and 55%
Minimum Credit Score
Credit score requirements may vary depending on income, loan amount, lender, and down payment. Self-employed borrowers will usually need at least a 620 score to qualify for a bank statement loan in Colorado. A higher down payment may lead to more loan eligibility flexibility. Some money lenders may allow applicants with lower credit scores to use a co-borrower.
Down Payment Requirements
Qualifying for a bank statement mortgage requires at least a 10% down payment. However, loan receivers may qualify for a lower or higher down payment based on their credit scores and the subject property price.
Debt-To-Income (DTI) Ratio Considerations
The debt-to-income (DTI) ratio refers to your monthly debt payments in relation to your business income. The maximum DTI ratio allowed for a bank statement loan is typically between 45% and 55% and depends on the lender.
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Eligible Property Types in Colorado
A bank statement mortgage allows buyers in Colorado to purchase various property types, including the following:
Primary Residence
Many self-employed borrowers use bank statement loans to purchase a primary residence. Durango, Fort Collins, and Colorado Springs are popular primary residence cities.
Second Home
Borrowers can also use a stated income loan to acquire a second home. A second home is a secondary personal property that’s not used primarily for income.
Investment Property
An investment property generates rental income. Colorado offers many great real estate investment destinations, including Aurora and Denver.
Tips for Applying for a Bank Statement Loan
Are you self-employed and ready to finance your dream home with a bank statement mortgage? Here are a few tips to help you get started.
Organize Your Business Bank Statements
Carefully organize the last 12 to 24 months of bank statements, including both personal and business accounts. This makes loan processing and underwriting easier and faster.
Maintain Consistent Deposits
Maintain consistent deposits to show that you can afford the monthly mortgage payments. Try to keep deposits to a specific bank account to show a clearer income pattern.
Prepare Additional Documentation
Depending on the lender, a borrower may need additional documentation to qualify for a bank statement mortgage. Additional documents you might need include business registration, profit and loss statement, and expenses. Proof of verified assets can also help demonstrate your net income and help you qualify for an asset-based loan.
Work with a Knowledgeable Mortgage Broker
Bank statement loans are non-QM loans (non-qualified mortgage), meaning they’re nontraditional. While they can be a great alternative to traditional loans, especially when you’re self-employed, it’s important to work with a knowledgeable mortgage broker. A skilled broker can help navigate the unique requirements and benefits of bank statement loans, ensuring you find the best loan option for your needs.
Why Choose Pride Lending for Your Bank Statement Loan in Colorado?
Pride Lending has in-depth experience in helping buyers in unique financial situations purchase homes in Colorado. We offer customized buying and lending solutions that help more residents become homeowners.
Lower credit score? No co-borrower? Self-employed? Our team will work hard to find a customized solution for you.
Get One Step Closer to Owning Your Colorado Dream House With Bank Statement Loans
Are you ready to purchase your home in Colorado? Pride Lending makes the loan application process easy and fast. Get qualified today using our online form. Call our team at 725-231-0192 if you have any questions about self-employed financing in Colorado.
Our team prides itself on serving underrepresented communities throughout Colorado and the United States. We’re ready to help you turn your dreams of homeownership into a reality.
