On this page
- What is a bank statement loan?
- How do lenders figure income on a bank statement loan?
- Which deposits don't count as income?
- 12-month vs. 24-month bank statement loans (and other options)
- Who is a bank statement loan good for?
- How do you qualify for a bank statement loan?
- What documents do I need for a bank statement loan?
- How to get your bank accounts ready before you apply
- How much do I need for a down payment on a bank statement loan?
- Bank statement loan pros
- Bank statement loan cons
- Bank statement loan vs. conventional, DSCR and asset depletion: which is better?
- Questions
- Sources
What is a bank statement loan?
Most mortgages check self-employed income with tax returns. That works fine until you've had a good accountant. Legal deductions for vehicles, equipment, depreciation, a home office and other business costs lower your taxable income. They also lower the income a traditional underwriter (the person who reviews and approves your loan) can count.
A bank statement loan works differently. The lender reviews 12 or 24 months of bank statements instead of tax returns. They pick out the deposits that are real business income and use them to figure a monthly qualifying income.
These are Non-QM loans. That means they fall outside the government's "Qualified Mortgage" category. It does not mean anything goes. Federal Ability-to-Repay rules still require the lender to make a reasonable, good-faith decision that you can repay the loan, using reliable third-party records. Bank statements are those records.
Before you go this route: being self-employed doesn't automatically mean Non-QM. Plenty of business owners qualify for conventional, FHA or VA loans using their tax returns, often at a lower cost. I always look at your returns first. See how self-employed borrowers qualify the traditional way.
How do lenders figure income on a bank statement loan?
It depends on whether the statements are from a personal account or a business account.
Personal bank statements
If your business income goes into your personal account, the lender adds up the eligible deposits over the review period and divides by the number of months. Money in a personal account has usually already been paid out of the business. So many programs don't subtract business expenses from personal statements. Some do, especially when business and personal spending are mixed in the same account.
Hypothetical illustration — not a quote, offer or commitment to lend
Over 12 months, a borrower's personal account shows $186,000 in deposits. The underwriter removes $18,000 of transfers from the borrower's own savings account and a one-time $12,000 deposit from selling a car.
Eligible deposits: $186,000 − $30,000 = $156,000. $156,000 ÷ 12 = $13,000 a month in qualifying income.
Business bank statements
Business accounts show total sales before expenses. So the lender has to account for what it costs to run the business. Programs usually use one of three methods:
- A fixed expense factor. The lender assumes a set percentage of deposits goes to expenses. Sometimes it varies by industry or number of employees.
- A CPA or tax preparer expense letter. Your licensed preparer states your business's actual expense ratio, which may be lower than the default.
- A profit and loss statement. A P&L prepared or reviewed under the program's rules, checked against your deposits.
If you own only part of the business, the lender usually applies your ownership percentage too.
Hypothetical illustration — not a quote, offer or commitment to lend
A business account shows $480,000 in eligible deposits over 24 months. The borrower owns 100% of the business. The program uses an expense factor of 40%, based on a preparer letter.
$480,000 × (1 − 0.40) = $288,000. $288,000 ÷ 24 = $12,000 a month in qualifying income.
If the program's default factor were 50% instead, income would be $10,000 a month. That gap can change how much home the borrower qualifies for. That's why the expense method matters so much.
Which deposits don't count as income?
Not every deposit is income. Expect the underwriter to remove or ask about:
- Transfers between your own accounts, like moving money from business to personal or from savings to checking.
- Loan money, credit card advances and lines of credit.
- Refunds, returns and chargebacks.
- Large or unusual deposits that don't match your normal pattern. Many programs define a "large deposit" based on your average monthly income. You'll need paperwork showing it's business income.
- Cash deposits without a clear business source.
- Non-business money, like gifts, selling personal items, or tax refunds.
Underwriters also look at the trend. Steady or rising deposits are easier to approve than deposits that dropped sharply in recent months. Frequent overdrafts or returned items (NSFs) can also be a concern, depending on the program.
12-month vs. 24-month bank statement loans (and other options)
| Option | How income is shown | Often a fit when… |
|---|---|---|
| 12-month bank statement | Most recent 12 months of statements | Your last year is stronger than your two-year average |
| 24-month bank statement | Most recent 24 months | Income was steady, or a program offers better terms for a longer history |
| Personal + business combination | Both account types, reviewed separately | Income lands in more than one account |
| 1099-only | 1099 forms, sometimes with an expense factor | You're an independent contractor paid on 1099s |
| P&L-only | Profit and loss statement under program rules | A licensed preparer can support a P&L |
| Asset depletion / utilization | Savings and investments turned into qualifying income | You have large assets but uneven income |
The right one depends on your deposit history, how your business is set up, and which programs are available for your situation.
Who is a bank statement loan good for?
- Business owners whose tax returns show far less income than the business makes
- Self-employed borrowers whose income jumped recently, so a two-year tax average shows less than they earn now
- 1099 contractors and commission-based professionals
- Owners of cash-flow-heavy businesses like contractors, salons, restaurants, trucking, medical and dental practices, consultants and real estate agents
- Borrowers whose latest returns aren't filed yet or show an unusual year
How do you qualify for a bank statement loan?
- Self-employment history. Many programs look for two years in business. Some accept less if you worked in the same line of work before. Expect proof through a business license, a CPA or tax preparer letter, or state business records.
- Your qualifying income and DTI. DTI (debt-to-income ratio) is how much of your monthly income goes to debt payments. The lender compares your figured income with your new house payment plus your other monthly debts.
- Credit score and history. Your score affects pricing and the most you can borrow compared with the home's value (LTV, or loan-to-value). Rules for past credit problems vary by program.
- Down payment and reserves. Reserves are savings left over after closing. Expect to need more of both than agency loans require, and more for rentals or larger loans.
- The property and how you'll use it. Primary home, second home or investment property, each with its own limits.
What documents do I need for a bank statement loan?
- 12 or 24 months of complete bank statements, every page, for each account used
- Proof the business exists and you own it, such as a business license, CPA or tax preparer letter, or articles of organization
- An expense letter or P&L, if the program uses one
- Explanations and paperwork for large or unusual deposits
- Account statements for down payment, closing costs and reserves
- Photo ID and permission to pull credit
How to get your bank accounts ready before you apply
A few months of good habits make the review much smoother:
- Keep business income in its own account. Mixing personal and business money raises questions and can lead to a lower income figure.
- Skip unneeded transfers. Money bouncing between accounts has to be traced and usually gets left out.
- Deposit income, not cash advances. Loan and credit-line money isn't income.
- Keep paperwork for anything unusual as it happens. A big one-time job or equipment sale is easy to explain with an invoice now and hard to piece together later.
- Watch for overdrafts. Some programs treat repeated NSFs as a red flag.
- Talk to me before your CPA files. If you're weighing deductions against a mortgage in the next year, a short conversation can help you see both sides.
How much do I need for a down payment on a bank statement loan?
Bank statement loans usually need a larger down payment than conventional or FHA loans. The amount depends on your credit score, loan amount, property type and whether you'll live there. Rentals and cash-out refinances usually need the most equity. Some programs allow gift money on a home you'll live in, with their own paperwork rules.
Bank statement loan pros
- Income is based on cash flow, not taxable income after deductions
- A strong recent year can count, even if an older year was weaker
- Available for homes you live in, and often second homes and rentals
- Can be paired with other Non-QM features, like interest-only options, on some programs
Bank statement loan cons
- Higher cost than agency loans. If your tax returns qualify you for a conventional loan, that's usually cheaper.
- More equity required. Expect a larger down payment and more savings.
- Detailed statement review. Every page of every statement gets checked, and unexplained deposits can be left out.
- Prepayment penalties (a fee for paying off the loan early) are possible, especially on rentals.
- Rules differ between lenders, especially expense factors, which changes your qualifying income.
- Accuracy still matters. The income you list on your application must be truthful and supportable. A bank statement loan isn't a way around honest disclosure.
Bank statement loan vs. conventional, DSCR and asset depletion: which is better?
| Full-doc conventional | Bank statement | DSCR (investment only) | Asset depletion | |
|---|---|---|---|---|
| Income source | Tax returns (usually 2 years) | 12–24 months of deposits | Property rent | Savings and investments |
| Do write-offs lower income? | Yes, with some add-backs | No, an expense factor is used instead | Does not apply | Does not apply |
| Home you live in | Yes | Yes | No | Yes |
| Typical cost | Lowest for strong files | Higher | Higher | Higher |
| Down payment | Lowest options available | Larger | Larger | Varies |
| Best when | Returns show enough income | Cash flow beats taxable income | Rent covers the payment | Assets are large, income uneven |
Common questions about bank statement loans
How many months of bank statements do I need for a mortgage?
Most programs use either 12 or 24 months of complete statements. A 12-month program can help if your recent income is stronger. A 24-month program may offer different terms. Some programs let you choose, and I'll run both to see which works better for you.
Can I use personal bank statements instead of business statements?
Often, yes. If your business income goes into a personal account, many programs add up those eligible deposits. Business account statements usually need an expense factor or P&L. Some programs allow a mix of personal and business accounts.
What is an expense factor on a bank statement loan?
It's the percentage of business deposits a lender assumes goes to running costs. Your qualifying income is what's left. The factor may be a program default, may vary by type of business, or may come from a letter from your CPA or tax preparer showing your actual expense ratio.
Do I need a CPA letter for a bank statement loan?
Many programs ask for a letter from a CPA, enrolled agent or tax preparer. It confirms how long you've been self-employed and how much of the business you own, and sometimes your expense ratio. Some programs accept other proof, like a business license or state filings. Requirements vary by program.
Will large deposits be a problem?
Not if you can show where they came from. Underwriters look closely at deposits that don't fit your normal pattern. An invoice, contract or other record showing the money came from business work usually clears it up. Large deposits without paperwork are often left out of income.
Are bank statement loans only for buying a primary home?
No. Many programs also allow second homes and rentals, plus rate-and-term and cash-out refinances. Each has its own equity and savings requirements.
Do I still need tax returns for a bank statement loan?
Usually not to figure income. Some lenders ask for other papers to verify your business, and your application must list your income accurately. If your returns qualify you for a conventional loan, that may be the better choice, so I usually look at both.
How long do I need to be self-employed to get a bank statement loan?
Many programs look for about two years of self-employment. Some accept less when you've worked in the same field before. You'll usually prove this with a business license, CPA or preparer letter, or state business records.
This information is general education and may not reflect every lender's or investor's guidelines. Guidelines change; verify current requirements for your situation. Subject to credit approval, underwriting, program guidelines and property eligibility. Not a commitment to lend.