How bank-statement loans work

A bank-statement loan is a mortgage for people whose tax returns understate what they earn: the self-employed, freelancers, small-business owners, commission earners. Instead of W-2s and tax returns, the lender reads 12 or 24 months of bank statements and takes your income from the deposits. This guide explains the arithmetic so you can check your own statements before you apply.

What these loans are

They are "non-QM" mortgages: they sit outside the standard rules that require tax returns, so each lender writes its own program. Rates are usually a little higher than a conventional mortgage, down payments a little larger (often 10–20%), and the lender looks harder at the statements themselves. The appeal is simple: deductions that lower your taxable income no longer lower the income you qualify with.

12 or 24 months

Most programs accept either 12 or 24 consecutive months of statements from the same account. Twenty-four months gives the lender a longer view and smooths seasonal swings, so it usually earns slightly better terms; twelve months is faster and helps when the earlier year was weaker. Every month must be present, with every page, and the account should be the one your business income actually lands in. Mixing personal and business accounts in one application is possible but adds paperwork.

Expense factors

Deposits into a business account are revenue, not profit, so lenders subtract an expense factor before calling the rest income. Common factors run from 10% for a one-person service business with few costs to 50% for businesses that buy inventory or employ staff; many programs default to 25% or 50% and will accept a letter from a CPA stating the real ratio. Deposits into a personal account are usually counted at 100%, because the money has already passed through the business.

What lenders exclude

• Transfers from your own accounts. Money moved from savings or another checking account is not income.
• Refunds, reversals and chargebacks. They return your own money.
• Large or unusual deposits. A single deposit far above your normal month (a common rule of thumb is more than 150% of the monthly average) is left out unless you can document where it came from: a signed contract, an invoice, a closing statement from a sale.
• Cash deposits are often capped or excluded because they cannot be traced.
• Loan proceeds and gifts are not income, though a documented gift may still count toward the down payment.

After the exclusions, the lender adds the eligible deposits, divides by 12 or 24, and applies the expense factor. That monthly figure is the income used for the debt-to-income ratio.

What else they look at

• Overdraft and NSF fees. Many programs allow none, or at most two or three, in the last twelve months. Each one will get a question.
• Declining deposits. If the second half of the period is well below the first, expect a lower figure or a request for an explanation.
• Low balances and reserves. Lenders want several months of mortgage payments left over after closing; savings and retirement balances count.
• Gaps and missing pages. A statement whose transactions do not add up to its printed balances looks like a missing page.

What to prepare

• Every statement for the period, as the bank's own PDF, all pages.
• A one-paragraph letter for each large deposit, with the document that backs it.
• A short explanation for any overdraft or NSF fee.
• Proof the business exists for at least two years: a licence, a CPA letter, or a listing on your state's business registry.
• Statements for the accounts that hold your reserves.

The lender view on this site runs this arithmetic on your own statements, in your browser, so you can see the figure and the flags before anyone else does. It is an estimate for your preparation, not a lender's decision; every program sets its own rules.