In recent years, the tight inventory and skyrocketing prices have made home-buying a battlefield, leaving potential buyers exhausted. Instead of chasing elusive new homes, many homeowners have shifted their focus to enhancing and expanding their existing houses.

This trend has brought attention to financial tools such as second mortgages, which can provide the funding needed for renovations. But getting approved for a second mortgage? Now that's no walk in the park, especially for people with non-traditional income.

That's where bank statement second mortgages come into play. So what exactly are these loans, and what are the requirements? That's what we're here to talk about.

What is a Bank Statement Second Mortgage?

A bank statement second mortgage is a specialized loan product for borrowers with non-traditional income sources who want to utilize their home's equity without the hurdles of the conventional income verification process.

This unique financial tool lets you access up to $750,000 of equity in your home for various purposes—be it funding your business, financing home renovations, consolidating debt, or addressing unexpected financial needs.

These types of loans can be taken out on primary, secondary, or investment properties. However, this will add a lien to the home until it's paid off.

As the name implies, this type of loan uses bank statements to verify your income instead of traditional documents like W-2s, pay stubs, or tax returns. This allows a more accurate reflection of your financial situation, especially if you have fluctuating income or if you tend to maximize write-offs during tax season.

Lenders typically assess 12 to 24 months' worth of bank statements, closely examining your cash flow to gauge your ability to repay the loan.

Who Is a No-Income Verification Mortgage Best Suited For?

Bank statement second mortgages are an excellent choice for individuals with unconventional income patterns, such as:

• Self-employed borrowers 
• Small business owners
• Independent contractors
• Freelancers, gig workers, and consultants
• Those who want to tap into the equity of their house

What are the Requirements to Get a Bank Statement Second Mortgage?

The requirements for getting this type of loan are almost identical to standard bank statement loans. They are:

• Bank Statements: Not surprisingly, you'll need to provide 12-24 months of personal or business bank statements to verify your income.
• Good Credit: Ideally, your credit score should be 660 or above, as a better score means better terms and rates.
• Reasonable Debt-to-Income (DTI) Ratio: A DTI of 50% or less is pretty much widely accepted by most lenders.
• Adequate Home Equity: You need to have equity in your property to take out a second mortgage. These types of loans will allow you to go up to 85% of the value of your home.
• Asset Statements: Lenders typically require two months' worth of personal asset statements.
• Driver's License: This is necessary to confirm your identity.

How to Increase Your Odds of Securing a Bank Statement Second Mortgage

If you want to secure a bank statement second mortgage with favorable rates and terms, consider the following steps:

Boost Your Credit Score

It's no secret that your credit score is a critical component of any loan application. You want to get your score in the best possible shape before you approach your lender. That way, you can signal that you're a responsible borrower. 

To help you achieve this, we recommend that you:

• Pay your bills on time and in full.
• Maintain low revolving credit utilization.
• Avoid closing credit accounts unless necessary.
• Consider working with a credit repair specialist.

Maintain Stable Financial Accounts

As bank statements are the primary source of your income proof, it is imperative to establish and maintain stability in your financial accounts, be it personal or business. To demonstrate this, we recommend:

• Avoid making large, unexplained, or undocumented deposits.
• Keep your income as consistent as possible.
• Regularly monitor your accounts for any errors or discrepancies.
• Always maintain a positive balance to prevent overdrafts or insufficient funds.

Be Prepared with Necessary Documentation

Having all the right documentation ready to go when you approach your lender will only help speed up the process. Before you fill out your application, have these documents at hand:

• Complete bank statements, including blank pages.
• Certified CPA letter (if you own a business) that covers your ownership percentage, how long you have been in business, and that your business is currently in good standing.
• Two months' worth of personal asset statements.

Partner with an Experienced Lender

To successfully navigate the complexities of specialized loan products like bank statement second mortgages, you need a proficient lender skilled in handling such loans.

An experienced lender understands that each borrower's financial situation is unique, especially for entrepreneurs, contractors, and non-traditional borrowers. Because of this, they offer tailored solutions to fit your needs.

A good lender also brings a wealth of experience, so they can boost your chances of getting approved. But their expertise extends beyond that. Through their industry knowledge and connections, they know exactly what you need to get the most competitive rates and terms.

At MDL, we pride ourselves on embodying these qualities. With vast experience in the industry, we've honed our ability to understand and cater to the needs of non-traditional borrowers.

Our team is committed to delivering a smooth loan application process complemented by superior customer service.

As your lending ally, we're with you at every turn, offering transparency, competitive rates, rapid approvals, and, most importantly, a dedication to help you accomplish your property ownership aspirations.

Ready to take the first step toward securing a bank statement second mortgage? Contact our team of experts.