How Do Bank Statement Loans Work?
The short answer
A bank statement loan qualifies self-employed borrowers using 12 or 24 months of bank deposits instead of tax returns. The lender reviews your deposits, applies an expense factor or uses a CPA-prepared figure, and turns that into monthly income. It is a non-QM loan, so expect a larger down payment and a higher cost than conventional loans, but it can open doors that tax returns keep shut.
Who it tends to fit
- Business owners whose write-offs make their taxable income look small
- Freelancers and contractors with income from many sources
- Owners whose business recently grew faster than their tax returns show
How lenders figure your income
- Collect statements: 12 or 24 months of personal or business statements, depending on the program.
- Count qualifying deposits: business income counts. Transfers between your own accounts, loans and one-time items usually do not.
- Apply expenses: for business accounts, the lender takes out an expense factor, or uses a letter from your CPA showing your real expense ratio.
- Average it: the result becomes your monthly qualifying income.
The trade-offs
- Higher rates and fees than conventional loans, in most cases
- Larger down payment requirements
- More reserves, meaning savings left after closing
- Large, unusual deposits need explanations
Many borrowers use a bank statement loan to buy now, then refinance into a conventional loan once their tax returns catch up. That is a plan, not a promise, since future rates and guidelines are unknown.
Frequently asked questions
Can I use personal statements if my business runs through them?
Often yes, though rules differ. Keeping business and personal money separate makes everything easier.
Do I still need a credit check?
Yes. Credit, reserves and down payment all shape the terms.
Also read whether tax write-offs hurt your approval, call (469) 414-5554, or visit our Texas branch.
By Kelly Welton, Mortgage Broker (NMLS #314183), Mohave Mortgage Texas Branch. Mohave Mortgage NMLS #1830581 · Texas Branch NMLS #2690682 · Equal Housing Opportunity. General information only, not a commitment to lend or financial advice. Programs, rates and guidelines vary and change.
