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Live With Angel Oak Mortgage Solutions – How To Originate A Bank Statement Loan

Hello, and welcome to a series here at Angel Oak on everything you wanted to know about bank statement loans, but just never asked. I have the talented Bob Hutchens on this LinkedIn webinar with me. And we’re going to go through really three things that are preventing a lot of you mortgage professionals out there from originating an alt income or what is known as a bank statement loan out there.

Full Transcript

Eric Morgenson

Hello, and welcome to a series here at Angel Oak on everything you wanted to know about bank statement loans, but just never asked. I have the talented Bob Hutchens on this LinkedIn webinar with me. And we’re going to go through really three things that are preventing a lot of you mortgage professionals out there from originating an alt income or what is known as a bank statement loan out there. And I’m just going to run through these three reasons. Number one, you’re not originating bank statement loans, because Heck, you’re not sure how a bank statement loan income is calculated. And with all that ambiguity, jeez, how could you get on the phone with a borrower when you’re not sure yourself? We’re going to cover that today. Number two is you heard these were hard, you heard or you might have tried one a few years ago, and it went, let’s just say, wonky, and it was painful. And you don’t want to try again. Here at Angel oak, we have streamlined this bank statement loan program and how we calculate the income, we do all the work for you. So we’ve taken how hard it is totally away in streamlined it. Number three is a bank statement borrower is a self employed borrower, he or she have built their own company, they tend to be quite a controlling personality, and possibly some of you mortgage professionals out there do not want to deal with that kind of an alpha mentality and get kind of slapped around, especially if you’re a little ambiguous or just don’t know exactly how these loans go. So we’re going to help you get confidence into addressing those borrowers because here’s what’s waiting on the other side. Banks name it loans are normally very big loan amounts. Think about it. You don’t see a lot of self employed who are two wage earners out there buying 100-345 million dollar house, folks, I’m here to tell you 100%, those folks that are buying those luxury properties are self employed. Now, there’s over 45 million self employed Americans out there. And this is such an under underrated program out there not a lot of people are going to think about chase Wells Fargo BFA all the money center banks, they can’t do these loans. So you have an enormous income opportunity in doing these loans. So let’s just get into how do we go about calculating the income on a bank statement loan, you have the option of going either business bank statements, or personal bank statements. Bob, what do we see most when it comes to a bank statement loan because by the way, Bob and I, together have actually been a part of funding, possibly over a billion dollars in bank statement loans. today. We’ve been at this for eight years with a joke. So boy, when you say we’ve seen everything, boy, you cannot begin to anticipate all that is of the human element out there. And then you overlay entrepreneurs and right when we think we’ve seen it all, there’s always a new scenario. So we’re not good at these. We’re great at them. Bob, tell us personal or business, what do we see most?

Bob Hutchens 

Well, I think it’s a good idea to always start with the business account, if they have a business account, it’s possible they could be running their business through a personal account, and then you’re only going to have the personal option. But if they have a business account, we know that the majority of those deposits are going to be from self employed business operations. When using a personal account, they could have income sources from coming in from different places and gets a little more difficult. The easiest situation is if they have a business account, and they pay themselves to their personal account, we’ll use 100% of those deposits to the personal account. And we would not need to apply any sort of expense factor in that situation. But it all comes down to where does the money go?

Eric Morgenson 

That’s it. Well, thank you. And with Angel Oak, you guys, we don’t care what the balances. We don’t care about withdraws. All we’re actually calculating is deposits to us. That’s their business revenue. So when when you’re originating a bank statement loan and you find out your borrower is self employed. First question is do you own the company 100% yourself. You see if they are 100%, owner of the company, guess what they’re doing? They’re writing a lot of their personal expenses through their company folks think about their writing all their car expenses, their writing all their traveling expenses, they go out to dinner, they no doubt will be writing that off if they get a newspaper Pay for subscription that’s being paid by their company. So, this is the American tax code, you have w two and you have self employed, self employed people create jobs, self employed people, right here are that are the risk takers, job creators get all the tax press W two wage earners do not take take risks, they do not create jobs so they don’t get the tax preps. So self employed borrower owning the company 100% themselves, you’re going in it, they have a business checking account, you’re gonna want to go business bank statement, traditionally. Now, our number one demographic on bank statement loans are the American real estate professional. That’s right. realtors are our number one demographic on bank statement loans, but they’re self employed, but they don’t have a business account, they only have a personal checking account. So what are we doing there, where you would collect either 12 or 24 months of their personal bank statements. And we’re going to add up all the deposits that are from the normal course of them selling homes. If it’s 12 months, at a mala divided by 12. And there is the average monthly deposit income. Mom take it from there.

Bob Hutchens 

Yes, next time you have a self employed borrower, and you’ve calculated their income on their tax returns, it’s very simple to just ask them, Hey, send me your most recent 12 months bank statements. Now all of a sudden, instead of them qualifying for maybe a $600,000 loan, maybe now they qualify for that $1.2 million loan that they actually want. Because we’ve calculated their purchasing power upfront using the bank statements. Very simple procedure, you know, their purchasing power.

Eric Morgenson 

You guys, we haven’t really tracked it but I would guess Bob, versus what their if you go full doc self employed borrower tax returns, let’s say they can buy a, you know, out here in Newport Beach, California, a $500,000 condo, which is hard to find. But when you go bank statements non traditional these non agency, now they can buy, they qualify for up to a $2 million loan amount. So they have so much more purchasing power, what by going bank statements than full talk. But let’s get back to how we calculate the income. So let’s just take that realtor, for example, we collected 12 months worth of their bank statements added up all the deposits divided by 12, let’s say the income is $10,000 a month. With that, what we do across the board is hit them with a 50% expense ratio. Now, for a realtor, they don’t have hardly any overhead. So hitting them with a 50% expense ratio would be would kill the loan. So in that situation, we will allow up to 85% of what that realtor deposits into their personal checking account to qualify for this bank statement loan. So the average deposits are $10,000, let’s keep it simple, we would allow 80 $500 towards their income, that’s the income that we’re going to have you put on the 1003. And we move the loan off into funding. Now, on a business bank statement loan, that they’re not a retailer that they have maybe one or two, maybe seven different companies, when you’re originating that borrower is you want to find out what one of their companies is their bread and butter, you guys, self employed borrowers always have their favorite company if they have more than one. And the one that has the most revenue is the bank statements that we’re going to want to use. Now, if that bank statement, if the calculation is still like we want to see 40% debt to income ratio, front end 50 back end, we will pivot to the next company, as long as these companies have totally separate checking accounts. And there’s not a lot of transfers back and fourth, which is the shell game and makes it very hard to underwrite these loans to be at are compliant, meaning we have to document the ability for the borrower to repay these loans. And if we’re including deposits that are just transfers, well, we might have a violation on ATR because we’re a transfer as the borrower’s income. So, again, this is makes him alone, they have more than one company. The first company’s revenue is still light on deposits in order to make the loan mark, we will use the second company as long as they have separate checking accounts. Bob, anything you want to add to that?

Bob Hutchens 

Yes, I just want to remind how simple it is. We’re going to calculate that income for you. All you need to do is you’re going to get the application And credit, which you probably already have, and you’re going to upload the 12 or 24 months bank statements to us upfront. And I put this all together, I coordinated I’m bank statement, Bob. And then I work with our internal BSRT, which is my bank statement review team, which is a team of underwriters that will calculate the income for us, they’ll send me the deposit spreadsheet, which I then share with you. And we see where we are from that point. Very simple process. We do it all for you.

Eric Morgenson 

Now, one takeaway right there, folks, we do this for you. All you do is give us a fully vague 1003, including if the borrower is currently renting, we need to know what their rental, what they’re paying for rent each month, because we can’t have a rent free borrower turn around and do a bank statement loan, we need to know their housing history. It’s one of the eight pillars of ATR. So payment Chuck. So just make sure if they’re renting, put that rent, what their rent figure is per month on your 1003 run credit. So we need a 1003 credit, and give us the bank statements in folks, we do all this for you. And here’s the kicker, we’re going to fully credit an income underwrite these bank statement loans for you upfront within 24, normally 48 hours. Now think about that. We do this even on a TBD property. Think about your realtor referral partners out there when they have a self employed borrower. They’re like, Oh my god, they’ve all driven a self employed borrower around to seven to maybe 13. Different showings. Now it’s time to write a contract. Oh, and by the way, that approval letter from BFA just blew up, because, oh, we didn’t know that they have this other company that took all these losses, or, oh, we didn’t know about all this depreciation, or Oh, we didn’t pass carry forward, for whatever reason, they will not fully income underwriter bank same alone on a TBD property, we will. So with that said, we do all the work for you on these banks make loans, you can even go offline on contact me and Bob, and we’ll do a personalized training for you to get you comfortable on how we calculate income on a bank statement loan. But folks, it’s easy. Now, I want to pivot now to anybody out there that has done a bank statement loan, and it went kind of wonky. Here’s why. When we started doing bank statement loans, Bob, do you remember a borrower with a 50% loan to value self employed 800 FICO score, you remember what the rates were Bob? sixes and sevens few years ago, eight years ago, it was 9.99? Well, yeah, those were all 9.99. And we went to market with that. And sure enough, we were funding a lot of banks saving loans. Now, our bank statement loans, folks are starting at three and a quarter. And that’s a 30 year fixed rate, three and a quarter on a bank statement, loan 30 year fixed, it just doesn’t get any better. So any of you folks out there that have ever done a bank statement loan, folks, give us a call. Now it’s time to put your borrower in a much more favorable rate. Plus, a lot of our friendly competitors are all on five or seven one arms, all of Angelo clones or a 30 year fixed, really an easy sell. And there’s no hit to rate for going 30 year fixed. Okay, so next, I want to, I want to address the kind of borrower that that is a bank statement loan borrower, and they can’t be he or she can be quite an intimidating character, especially if they have How do I say this? If they’ve got millions and millions of dollars? See Never before in the history of America, can you have an ability to repay ATR compliant loan where a borrower can document to the IRS and he makes $34,000 a year in income and turn around and buy a $2 million house? Never before. So this borrower is delighted to the fact that they can even get a loan, because a lot of these folks out there think that they have to write a check in order to buy a house because they just don’t show a lot of income on their taxes. So with that said, the personality of a bank statement borrower, it can go a couple of ways. But you have to have confidence when you’re talking to any one of your borrowers, because obviously, this is a huge financial decision for them. So it makes sense to borrowers, even though they’re controlling you just originated as a matter of fact, you would just methodically go through this borrower, you’re self employed. Do you own your company? 100% yourself? Oh, you don’t. I see you have three partners so you own a quarter of your business. So with that type of borrower, folks, you’re gonna want to go personal bank statement loan. Why? Because his three other partners, her three other partners would get awfully grumpy with them if they were writing all their personal bills through their collective company. So in a partnership, they always pay themselves. That’s a real easy loan to do a personal bank statement loan, and we will allow 100% of those deposits that flow into the personal checking account. But if they own their company 100% themselves, then you’re traditionally again, wanting to go business bank statements, letting them know, here’s how it works, then you’re going to find out, obviously, the type of business that they’re in the type of business that they’re in, if they have seven locations, and maybe 130 employees, well, that’s a lot of overhead. So what we’re going to do is we’re going to allow 30% of what that borrower deposits in their business account, no 30% margins are great restaurants are running at around 20, sometimes 10, retail runs at 15% margin. And we’re giving borrowers 30% margins, if they have a lot of overhead, if they have modest overhead, maybe one or two locations, and maybe five employees, then we’re going to give them 50% margins, we’re going to literally allow 50% of what they deposit into their business checking account, I find that quite generous. Now if they’re a sole proprietor, if they’re somebody that has very low overhead, like a real estate agent, a like a programmer out there, like people in the gig economy, then will allow up to 85% of what they deposit into their business account. Now, folks, with the bank statement borrower, we will allow if they have both w two income and self employment income, we’ll allow both just as long as that self employment income isn’t, as Bob says, a basket weaving side hustle that they’re making $200 a month, we want to see at least 30% of what they make w two coming in from their gig or their self employment efforts. Bob, anything you want to add to that?

Bob Hutchens 

Yeah, often you’ll have, let’s say you have a W two teacher spouse, for example, you can absolutely use that spouse’s w two income, Social Security income you can use by providing the awards letter, we don’t want to see any tax returns. And also, we’ve been talking about the purchase opportunities here mostly but don’t forget the refinance opportunities, hear from those borrowers several years ago that have the higher interest rate, maybe they did a bank statement loan, or maybe they just cut a check, and they want some cash out maybe to put into their business. There’s huge refinance opportunities in this segment of the market also.

Eric Morgenson 

Indeed, so we’re gonna wrap up right now, folks, but here’s the thing, 45 million self employed Americans out there, it’s a lot bigger than the VA market. On top of that, folks, let’s talk about the economy went like this over the last four years, then we hit the pandemic. So a lot of self employed people like dry cleaners, restaurant owners, boy, they got crushed. But other industries, other self employed people went kaboom. How about contractors, if you guys know anybody that’s a licensed contractor out there, they’re kind of printing money, there is a lot of a lot of different micro economies out there that are crushing it, that would love to be able to buy either a house or a bigger house, but they guess what they’re writing off too much. So there’s so much opportunity out there with these borrowers. And again, here at Angel oak, we are going to literally take you by the hand and walk you through every stage of doing your first couple of bank statement loans. And then we’re going to get you rich on the niche. Because folks, once again, less than 15% of all licensed loan officers in America have ever done a non qm loan, which includes bank statements. Think about that 85% of your competition has yet to do these. So, folks, I’m telling you, this is such a great opportunity. We have a perfect storm with these bank statement loans. And Angela would love to partner with you folks in getting these things done. Bob, anything you want to end with?

Bob Hutchens  

Yeah, I’m going to finish up by sharing my screen quickly here to just show you how easy it is to price these out and get it submitted for pre qualification. So I’m on our website here. Can you see that?

Eric Morgenson 

It’s kind of it’s flickering. But yes, I don’t know why it’s flickering. Go ahead and go back. Maybe as you start driving There we go.

Bob Hutchens 

Okay, here’s our website very simple. You’re going to click it’s at AngelOakMS.com, what market, you’re going to click on the non-QM quick quote here. This is your pricing tool you can see there’s no login required. We’re going to do is just a very simple bank statement type scenario. Most of the self employed borrowers have great credit because they run a business they keep their credit clean. Maybe we’re just doing a simple 24 month business bank statement purchase loan, you can see rate pops up immediately 3.75, 80% LTV

Eric Morgenson 

3.75 at 80% renewal and any percent LTV Is there any EMI on these programs, Bob?

Bob Hutchens 

I can’t even spell EMI, you can see we can go to 90%. No MI, you find the program you want, you can play around with this a little bit you select the program you want, you can skip the 3.4 if you want brings you to this screen where you just upload your app and credit and you just can drag and drop the bank statements in here. And you submit that and that comes to us for evaluation and we calculate the income and that took no more than a few seconds.

Eric Morgenson 

We do the bank statement calculation for you you guys last thing we want you to do is hover over a year or two years worth of self employment person’s bank statements trying to figure out the income Nope, just give it all to us. And we do that we’d rather have you guys get back out there and actually find more borrowers. That’s where you make money not calculating income. We do it for you. So with that said bank statement Bob, Angel Oak Eric, you guys we are here to help you get rich on this bank statement niche trust me jump in the water is fine in bank statement land.