Understanding Home Equity and Bank Statement Home Equity Loans

Homeownership comes with a hidden treasure known as home equity, and if you're a self-employed homeowner, you might be wondering how to determine and check your home equity to leverage it for your financial needs. In this article, we'll delve into what you need to know about home equity loans, with a particular focus on bank statement home equity loans and lines of credit (HELOCs) that cater to self-employed individuals.

How to Determine Home Equity

Before exploring bank statement home equity loans and HELOCs, let's first understand how to determine your home equity. Home equity is the difference between the current market value of your home and the outstanding balance on your mortgage. To calculate it, you can use the following formula:

       Home Equity = Current Market Value of Home - Mortgage Balance

Your home's value can be determined through a professional appraisal or by researching recent property sales in your area. Your mortgage balance can be found on your mortgage statement.

What to Know About Home Equity Loans

Home equity loans, also known as second mortgages, allow homeowners to borrow against the equity they've built in their homes. Here are some key points to consider:

• Bank Statement Home Equity Loan: This type of loan is tailored for self-employed individuals who may not have traditional income documentation like W-2s or tax returns. Lenders use your bank statements to verify your income and determine your eligibility.

• Fixed Interest Rates: Home equity loans typically offer fixed interest rates, providing stability and predictability in your monthly payments. This can be advantageous in a rising interest rate environment.
• Loan Amount: The amount you can borrow depends on your home's equity and the lender's loan-to-value (LTV) ratio requirements. LTV ratios usually range from 70% to 85% of your home's value.

Bank Statement Home Equity Line of Credit (HELOC)

A HELOC is another option for accessing your home's equity. Unlike a home equity loan, which provides a lump sum, a HELOC works more like a credit card, allowing you to borrow funds as needed up to a predetermined credit limit. Here's what you need to know:

• Bank Statement HELOC: Although extremely rare, some lenders offer HELOCs designed for self-employed individuals that rely on bank statements rather than traditional income documentation for approval.

• Variable Interest Rates: HELOCs typically come with variable interest rates, meaning your payments can fluctuate based on market conditions. While initial rates may be lower than fixed-rate options, they can rise over time.
• Revolving Credit: HELOCs are revolving lines of credit, so you can borrow, repay, and borrow again during the draw period, usually lasting 5 to 10 years.

​Bank Statement Home Equity Loans vs. HELOCs

When deciding between a bank statement home equity loan and a HELOC, consider your financial needs and preferences. Home equity loans are suitable for those who prefer fixed payments and a lump-sum payout, while HELOCs provide flexibility with variable rates and ongoing access to funds.

Can You Get a Mortgage with Just Bank Statements?

If you're wondering whether you can secure a mortgage or a second mortgage with just bank statements, the answer is yes, but it depends on the lender. Some lenders offer bank statement-only mortgage loans, which are designed for self-employed individuals who may not have traditional income documentation. These loans consider your bank statements as proof of income.

My Home Has Significant Equity, but do I have to lose the low interest rate on my existing mortgage?

If you're self-employed and trying to get tap into your home's equity, you may already be aware of the challenges awaiting you when trying to apply for a mortgage.  If you have plenty of equity but don't want to sacrifice your existing low interest rate mortgage, there have been few, if any, options available until recently.  

We offer a BANK STATEMENT SECOND MORTGAGE that allows business owners to get a fixed-rate second mortgage using bank statements to qualify, instead of tax returns. 

Exploring Your Options: Bank Statement Second Mortgages

Bank Statement Second Mortgages, can be an valuable tool for self-employed homeowners looking to unlock their home's equity without sacrificing the low interest rate on their existing first mortgage. This program offers flexibility, accessibility, and stability, making cash-out more attainable for those with non-traditional income sources. However, it's essential to carefully review the terms, interest rates, and eligibility requirements to find out if this is the best fit for your financial goals.

In conclusion, understanding your home equity and the available options, such as bank statement home equity loans and HELOCs, can empower you to make informed financial decisions. Whether you're consolidating debt, investing in real estate, making home improvements, purchasing a vehicle, or funding education, your home's equity can be a valuable resource on your financial journey.

Yours in successful homeownership,

Derek Bissen
Loan Originator
NMLS#365627
Unconventional Lending Program Director

ABOUT THE AUTHOR:

Derek Bissen is a licensed Mortgage Loan Originator with over 25 years of experience in the industry. Derek is a self-employed lending expert who is known for his ability to work with borrowers who have substantial wealth and non-traditional lending needs. He is a creative loan structurer and specializes in portfolio lending, asset-based lending, bank statement lending, as well as traditional loans such as Conventional, FHA, VA, and first-time homebuyers.

Derek's expertise in the mortgage industry is unparalleled. He is a trusted advisor to his clients, providing them with customized loan solutions that meet their unique financial goals and needs. His vast experience and knowledge make him a valuable asset to anyone looking to purchase a home or refinance their existing mortgage.

As a highly-experienced loan originator and author, Derek is committed to sharing his knowledge with others. He regularly provides valuable insights and advice to readers looking to navigate the complex world of mortgage lending. His articles are informative, engaging, and backed by years of hands-on experience.

With his wealth of knowledge and dedication to his clients, he is the go-to source for all your mortgage lending needs. If you're looking for a reliable and trustworthy mortgage expert, contact Derek today to learn more about how he can help you achieve your financial goals.