Bank Statement Loans for Self-Employed Borrowers

Instead of using adjusted taxable income alone, the lender may review eligible deposits shown on personal or business bank statements. Credit, business history, property type, occupancy, assets, reserves, down payment or equity, and other program requirements still apply.

What Is a Bank Statement Loan?

A bank statement loan is a Non-QM mortgage that may allow an eligible self-employed borrower to document income using deposits reflected in personal or business bank statements.

This can be useful when a borrower's tax returns show reduced taxable income because of legitimate business deductions, even though the business produces sufficient ongoing cash flow.

A bank statement loan is not a stated-income or no-documentation loan. The lender must still evaluate the borrower's ability to repay and verify the income, assets, credit, business activity, and property used in the transaction.

How Do Bank Statement Loans Work?

The lender reviews eligible deposits appearing on a specified number of personal or business bank statements. Transfers, borrowed funds, unusual deposits, and other ineligible deposits may be excluded.

For business bank statements, an expense factor may be applied to estimate the portion of deposits available as qualifying personal income. The calculation method and documentation required vary by lender, business type, and program.

Some borrowers may also qualify using a combination of bank statements and other permitted documentation.

Who May Consider a Bank Statement Loan?

• Small-Business Owners: Borrowers whose tax returns may not fully reflect the current cash flow generated by their business.
• Independent Contractors: Eligible 1099 workers or contractors whose income may fluctuate or include substantial deductible expenses.
• Real Estate Professionals: Agents, brokers, investors, and other self-employed real estate professionals with qualifying deposit history.
• Consultants and Freelancers: Borrowers who receive income through recurring client payments rather than traditional payroll.
• Medical and Professional Practices: Eligible owners of established professional businesses with documented revenue and operating history.
• Borrowers With Complex Tax Returns: Self-employed borrowers whose taxable income has been reduced by eligible business deductions.

Bank Statement Documentation Options

Personal Bank Statements: Qualifying income may be calculated from eligible deposits made into the borrower's personal bank accounts.

Business Bank Statements: The lender may analyze eligible business deposits and apply an expense factor to estimate qualifying income.

• Personal Bank Statements - The account should reflect recurring income deposits
• Personal Bank Statements - Transfers between accounts may be excluded
• Personal Bank Statements - Large or unusual deposits may require explanation
• Personal Bank Statements - Business revenue deposited into a personal account may require additional documentation
• Personal Bank Statements - The account ownership and deposit pattern must meet lender requirements
• Business Bank Statements - The borrower generally must demonstrate ownership of the business
• Business Bank Statements - Business-related transfers and non-revenue deposits may be excluded
• Business Bank Statements - An expense factor may be determined by the lender or supported by additional documentation
• Business Bank Statements - A profit-and-loss statement or third-party expense analysis may be required
• Business Bank Statements - Business history and account activity requirements vary

How Is Bank Statement Income Calculated?

A simplified business-bank-statement calculation may look like this:

Formula: Eligible average monthly deposits x allowable income percentage = estimated monthly qualifying income

If eligible business deposits average $20,000 per month and the program applies a 50% expense factor: Average monthly deposits: $20,000; Estimated business expenses: $10,000; Estimated qualifying income: $10,000 per month.

This is only an illustration. The actual calculation may depend on the business type, ownership percentage, deposit history, expense analysis, excluded deposits, and lender guidelines.

Bank Statement Loan Options

• Home Purchase: Purchase an eligible primary residence, second home, or investment property, subject to the selected program.
• Cash-Out Refinance: Access eligible home equity for permitted purposes, subject to loan-to-value, seasoning, credit, and program requirements.
• Rate-and-Term Refinance: Replace an existing mortgage to adjust the rate, payment, term, or loan structure.
• Alternative Documentation Combination: Certain programs may permit bank statements to be reviewed with 1099 income, a profit-and-loss statement, assets, or other eligible documentation.

What Properties May Be Eligible?

Five-unit and larger multifamily properties, commercial buildings, and certain mixed-use properties should generally be reviewed through commercial financing rather than a residential bank statement program.

• Commonly Considered: Single-family homes
• Commonly Considered: Two- to four-unit residential properties
• Commonly Considered: Townhomes
• Commonly Considered: Eligible condominiums
• Commonly Considered: Primary residences
• Commonly Considered: Second homes
• Commonly Considered: Investment properties
• Commonly Considered: Certain non-warrantable condominiums
• Program-Specific or Restricted: Condotels
• Program-Specific or Restricted: Mixed-use properties
• Program-Specific or Restricted: Rural or unique properties
• Program-Specific or Restricted: Properties requiring substantial repairs
• Program-Specific or Restricted: Properties with project-level condominium concerns
• Program-Specific or Restricted: Properties with title, zoning, or environmental issues
• Program-Specific or Restricted: Five-unit and larger properties
• Program-Specific or Restricted: Commercial real estate

What Determines Your Bank Statement Loan Options?

• Personal or business bank statements
• Number of statement months reviewed
• Eligible average monthly deposits
• Business expense factor
• Business ownership percentage
• Length and stability of self-employment
• Credit profile
• Mortgage-payment history
• Property type and occupancy
• Purchase, refinance, or cash-out purpose
• Down payment or available equity
• Loan amount
• Assets and reserves
• Recent credit events
• State and lender requirements

Important Bank Statement Loan Considerations

• Rates and Costs May Be Higher: Bank statement loans may carry higher rates, points, or closing costs than comparable conventional financing.
• Larger Down Payments May Be Required: Available loan-to-value limits depend on the borrower, documentation, property, occupancy, loan purpose, and program.
• Not Every Deposit Counts as Income: Transfers, loan proceeds, refunds, one-time deposits, and other non-business revenue may be excluded.
• Business Expenses Are Considered: Business deposits are not automatically treated as personal income. An expense factor or other analysis is generally applied.
• Reserves May Be Required: Borrowers may need sufficient liquid assets remaining after closing.
• Documentation Is Still Required: Alternative income documentation does not mean no documentation. Business records, identification, asset statements, explanations, and other supporting materials may be needed.
• Program Guidelines Vary: Deposit calculations, required statement periods, credit requirements, expense factors, and eligible property types differ by lender.

Your Bank Statement Loan Process

• 1. Review Your Financing Goals: We discuss the property, occupancy, loan purpose, estimated value or purchase price, and timeline.
• 2. Review Your Income Structure: We determine whether personal statements, business statements, 1099 income, a profit-and-loss statement, or another method may best represent your income.
• 3. Analyze Eligible Deposits: We review the statement history, recurring deposits, transfers, business expenses, and potential qualifying income.
• 4. Compare Available Programs: You receive a comparison of estimated rates, payments, down payment or equity, reserves, fees, and documentation requirements.
• 5. Complete the Application and Approval Process: We coordinate documentation, appraisal, title, underwriting, loan conditions, and closing.

Use Your Business Cash Flow to Build a Financing Plan

Traditional tax-return calculations do not always reflect the current financial strength of a self-employed borrower. I can help you review eligible deposits, compare documentation methods, and determine whether a bank statement loan or another mortgage program better fits your situation.

Bank statement loans are subject to credit, income or alternative-documentation, business-history, property, occupancy, appraisal, asset, reserve, loan-to-value, lender, and state requirements. Rates, terms, calculations, fees, and program availability vary. Alternative documentation does not mean no documentation or guaranteed approval.