As the non-QM mortgage market returns, a popular program is coming back to the forefront. Bank statement loans are often a good option for borrowers who are self-employed or may not have a consistent income and a traditional way of proving their salary. It allows business owners, freelancers, contractors, and seasonal or gig workers the ability to secure a mortgage without the documentation that is usually required to verify income, such as W2 tax forms or pay stubs.
“The bank statement products became a staple for the non-QM space because it allowed borrowers, often self-employed, access to capital,” said Will Fisher, division vice president at Arc Home. “When the non-QM products disappeared for that three- to four-month period, self-employed borrowers had to return to hard money or attempt the traditional style of qualification, with the added strain of a global pandemic.”
In these situations, borrowers may have trouble qualifying for a conventional or FHA loan because the income on tax returns is not always an accurate representation of income earned. This may be the case because of adjustments for deductions or business write-offs. That’s where a bank statement loan can be a great option. Unlike hard or private money in nearly all cases, it won’t require a short term with a balloon payment, prepayment penalty, or exorbitant fees and rates.
Arc Home recently relaunched their bank statement loan product, with the option to provide either 12- or 24-months of bank statements in place of 1040 forms and tax returns. While most competitors are only offering a 24-month option, Fisher says Arc Home can extend increased flexibility to clients in their offering because of the innovative engineering of the program.
“The bank statement program is engineered to assess risk and evaluate a borrower's ability to repay better than most. For business bank statements, we deploy an expense factor system or an option where borrowers can use a third-party expense statement from a tax professional to qualify,” he said.
Fisher is also confident in the program because of the performance of past loans during the pandemic.
In their return to the non-QM space, Fisher says the approach stems from logic. Businesses and borrowers will be evaluated thoroughly to gain an accurate picture of their business model and their weathering of the recent pandemic. Arc Home is also allowing for asset depletion, where income can be calculated by dividing a borrower’s total assets by a set number of months, which can assist borrowers in the qualification process.
Over the past few months, Arc Home has been growing their talent pool and preparing them for the return of these sought-after loan products.
“Brokers will see consistency in underwriting and a high level of service from the get-go,” said Fisher. “We are not in rebuild mode; our systems and processes are already in place.”
Arc Home offers brokers support through a team of account executives and a scenario desk that can help calculate bank statements and are highly trained in the products available. Fisher says brokers shouldn’t feel alone in this process.
“If the needs of the borrower can’t be met with the traditional method of qualification, then the bank statement option should be next off the broker’s tongue.”