Stick With the Aggressive Tax Plan

Lately, we are seeing a lot of these bank statement programs coming back and more clients taking advantage of them. Walter Neil, the owner of Franklin Loan Center helped me see what makes sense. I put together some numbers to see why a borrower might choose a bank statement loan instead of a full doc loan.

Bank Statement Loans for Borrowers Who are Self-Employed

Bank statement loans are only for people who are self-employed. A good tax accountant can take a strong income and drive it down to next-to-nothing on paper, even with a healthy business. I’m not tax advising, but I see it all the time. A bank statement program can make sense for people with thriving businesses and aggressive tax plans.

Looking at the Numbers: Overall Savings

I started to play around with some numbers. I calculated it at a $1 million purchase with 25% down. I compared the payments between full doc vs. bank statement loans. The difference in the rate is 1 – 1.5% higher with a bank statement loan. I calculated it at 1.5%. In this scenario, the difference would be just under $650 per month. Over 10 years, and it’s around $78,000 in higher payments.

But the full-doc scenario, you will generally need 2 years of tax returns. To qualify for the loan, you will need to make at least $160,000 per year. Looking at the IRS tables, you’ll pay somewhere in the range of just over $100,000 in taxes in just 2 years. You can qualify for a full-doc loan, but you have to consider the high costs you are paying for taxes.

With a bank statement plan, even though the payments are going to be higher, it might actually make sense in the long-run. Over 10 years, you would still save a bunch of money compared to the higher tax bills.

Personalized Financing Recommendations

A bank statement loan isn’t for everyone, and I’m not trying to pitch it that way. But I am a big believer in talking to our clients who are self-employed to find the best solutions. Some people think they need to wait to file higher taxes before they jump into the market. But don’t delay – let’s run through the numbers and see what the options are. You can talk to your tax accountant and our lending team.

Not only do we need to look at the rates, but it’s important to look at the overall picture if you are following an aggressive tax plan. It feels counter-intuitive, but it could be the way to go.

If you know someone who is self-employed and having a hard time getting financing, then have them reach out to our team so we can explore the options.