In today’s evolving financial landscape, traditional methods of verifying income through tax returns or paystubs have become increasingly restrictive, especially for those whose income doesn't follow the conventional path. Whether you’re self-employed or a W-2 employee with non-traditional additional income, the challenge of getting a home loan can feel daunting. As the financial industry adapts to meet the needs of a more diverse workforce, a non-QM mortgage, known as the bank statement loan, has become very popular for borrowers who don’t fit into the mold of traditional salaried employees.

What Are Bank Statement Home Loans?

Bank statement loans are non-QM loans that allow borrowers to qualify based on their bank statements rather than traditional tax returns. This alternative income mortgage product is particularly beneficial for self-employed individuals including freelancers, consultants and business owners who may have complex income structures or write-offs that don't accurately reflect their true earnings or lifestyle.

Self-employment rates vary across the country with some regions showing higher concentrations of self-employed persons. California leads, followed by Florida, New York, Colorado, and Texas. These states are known for industries that attract self-employed professionals who might benefit from bank statement mortgages.

Who this loan helps

We have helped finance a variety of small business owners, corporate officers and independent contractors which includes:

Loan guidelines state if you own 25% or more of a business OR if you receive a 1099 you are considered self-employed and eligible in the eyes of a bank statement lender.

When to Use Deposit-Based Income to Qualify?

Many self-employed individuals face challenges when attempting to obtain traditional mortgages due to income documentation that reduces their monthly income. Bank Statement Loans provide a pathway to homeownership or refinancing through cash flow based underwriting and evaluate actual deposits rather than taxable income.

Requirements for 12-month or 24-month Bank Statement Programs

To qualify for a Bank Statement Loan, you must meet specific criteria:
 – Credit Score: Most lenders require a minimum credit score of 640 with more favorable rates and terms available for scores above 680.
 – Self-Employment History: You must have at least 2 years. Some lenders may allow 1 year of self-employment with recent work experience in the same industry.
 – Account Types: You may use personal checking or business checking account statements.*NEW - If using personal statements no self-employment is required.
 – Down Payment: You should expect to provide a down payment of 10-20%.
 – Income Calculation: Lenders determine your income with an expense factor on the deposits to estimate your net income.

This form of non-QM income verification focuses on consistent deposits and expense assumptions instead of filed tax returns.

How Bank Statement Loans Are Calculated

These mortgage loans use a structured deposit analysis to determine a borrower’s qualifying income. Here's an in-depth example of how lenders calculate income for these loans.

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Bank Statement Income Calculator

Use our  calculator  to see what you can afford.

Example Calculation:

Let's consider a self-employed consultant named John who's applying for a Bank Statement Loan.

  1. Bank Statement Analysis:
    • John provides 12 months of business bank statements.
    • Total deposits over 12 months: $180,000
  2. Expense Factor Application:
    • Lender applies a 50% expense factor (expense ratios can vary by industry and lender).
    • $180,000 x 50% = $90,000 (estimated business expenses)
  3. Net Income Calculation:
    • Gross Deposits: $180,000
    • Minus Estimated Expenses: $90,000
    • Net Income: $90,000
  4. Monthly Income Determination:
    • $90,000 ÷ 12 months = $7,500 per month
  5. Debt-to-Income (DTI) Ratio:
    • John's monthly debts: $2,500
    • Proposed mortgage payment: $3,000
    • DTI Calculation: ($2,500 + $3,000) ÷ $7,500 = 73.33%
  6. Loan Qualification:
    • If the lender's maximum DTI is 50%, John would need to either increase his income or decrease his debts to qualify.
Read about potential concerns

Common Challenges

Strict Underwriting Guidelines for Housing Payment History

  1. Perfect Payment Record Requirement:

    Many lenders require a perfect 12 or 24-month housing payment history for Bank Statement Loans. This means no late payments on rent or current mortgage for the past year. Even a single 30-day late payment could result in loan denial.

  2. Verification Challenges:

    For renters, lenders often require 12 months of cancelled rent checks or bank statements showing consistent rent payments. This can be problematic for those who pay in cash or have informal rental arrangements.

Large Deposit Documentation Requirements

Large deposits outside of regular income patterns can raise red flags for lenders. To resolve this:

  1. Provide a clear paper trail:

    Document the source of any large deposits with a copy of the check, closing settlement statements, bank statements, investment account statements, or sale receipts.

  2. Explain business cycles:

    If large deposits are due to seasonal business fluctuations, provide a written explanation and previous years' statements to show the pattern.

  3. Avoid depositing cash gifts:

    Large cash deposits are difficult to document. If receiving a gift, ask the donor to wire the funds directly to your account.

Explaining Unusual Account Activity

Examples of unusual account activity that may require explanation:

  1. Overdrafts or NSFs (Non-Sufficient Funds):

    Multiple overdrafts or NSFs can indicate financial instability. Lenders may require an explanation for more than one or two instances in a 12-month period.

  2. Large withdrawals:

    Significant withdrawals that don't align with normal business operations may need explanation. For instance, a $45,000 withdrawal from a business account that typically has $5,000-$10,000 transactions.

  3. Irregular deposit patterns:

    Deposits that don't follow a consistent pattern might raise questions. For example, if a business typically deposits $5,000-$7,000 weekly, but suddenly has a month with no deposits followed by a $50,000 deposit.

  4. Transfers between personal and business accounts:

    Frequent transfers between personal and business accounts can complicate income calculations and may require detailed explanations.

  5. Second person on bank account

    Your account statements may not have a non-borrowing person as an account owner. This creates confusion on which is income is yours and which is the other account holder's income or deposits. It's a common underiting rule where they are not flexible. I've tried many times with great explanations such as it's my child or grandmother.

To address these issues, borrowers should be prepared to provide written explanations and supporting documentation for any unusual activity. In some cases, lenders may exclude certain deposits or time periods from income calculations if satisfactory explanations cannot be provided.

Bank Statement Down Payment Guidelines

If you want to make a low down payment and fall within these guidelines, we encourage you to apply or contact us. In addition to down payment requirements, lenders review liquid reserves to ensure ongoing payments.

Your Loan Amount Your Credit Scores Your Minimum Down Payment PITI Reserves
Under $2 Million
Purchase or Refinance
740
720
680
660
10%
10%
10-15%
25%
6 months
6 months
9 or 12 months
9 or 12 months
$2M to $3 Million
Purchase or Refinance
740
720
680
660
10%
10%
20%
30%
9 months
9 months
12 months
12 months
$3M to $4 Million
Purchase or Refinance
760
720
680
660
20-25%
25%
30%
N/A
12 months
12 months
18 months
N/A
$4M to $5 Million
Purchase or Refinance
760
740
680
660
25%
25-30%
35%
N/A
18 months
18 months
18 months
N/A
mortgage specialist shaking hand of self-employed person

The Bank Statement Loan Application Process

The application process involves several steps whether a refinance or purchase:

  • Pre-qualification: Discuss financial situation with a lender to determine eligibility.
  • Documents: Provide one year of account statements for the 12-month bank statement program.
  • Loan application: Submit formal application and supporting documents.
  • Underwriting: The lender reviews the application and may request more information.
  • Approval and closing: Once approved, you receive loan terms and schedule a closing.

Bank Statement Mortgage Rates and Terms

Interest rates for Bank Statement Loans are typically higher than those of conventional mortgages due to the increased risk associated with non-traditional income verification. They're approximately .75%-1.50% higher depending on your credit score, loan amount, and loan-to-value ratio (LTV). The best rates tend to be at 70 LTV and less.

Factors That Influence Interest Rates

To obtain the most favorable interest rate on this self-employed non-QM mortgage:

  1. Improve your credit score before applying
  2. Aim for a lower loan-to-value ratio by making a larger down payment than a low down payment of 10%-15%
  3. Negotiate with the seller to credit you 1-2% for closing costs which may be used to pay discount points to reduce the rate
  4. Compare offers from other bank statement lenders

Term Options:

Choose a Lender Experienced with Bank Statement Programs

When selecting a lender you should consider:

Contact a mortgage advisor to discuss individual situations is the first step towards finding a bank statement non-QM loan that fits specific needs.

It is important to note that every borrower's situation is unique, and what works for one may not be the best option for another. Consultation with a qualified mortgage professional is essential to determine the most suitable loan product for specific circumstances.

It's crucial to work with a loan originator like myself who understands the unique needs of self-employed individuals and has a track record of successfully closing non-QM loans. Maybe you get a quote with a lower APR. Okay, ask them if they have actually closed loans without enduring endless requests for new documentation, how long it took to close, how long have you been originating loans? etc.

We know which wholesale non-QM lenders to place you with so you can get on with your life and avoid random time consuming tasks. Not all lender's programs are the same just as not all loan officers have the same knowledge or experience. That being said, sometimes a bank statement loan is not your best option. Here's others I use when that happens.

Success Stories: Bank Statement Loans in Action

California Tech Entrepreneur:

Sarah, a successful app developer in Silicon Valley, used a Bank Statement Loan to purchase her home in San Francisco. Despite her high income, her tax returns didn't reflect her true earning potential due to business deductions. The Bank Statement Loan allowed her to qualify based on her actual cash flow, securing a $1.2 million mortgage with a 15% down payment.

Texas Small Business Owner:

Mike, who owns a food truck business in Austin, turned to a Bank Statement Loan when he wanted to buy his first home. His seasonal income made traditional qualification difficult, but by using 24 months of business bank statements, he secured a $350,000 mortgage with competitive terms.

When a Bank Statement Loan Is the Right Fit

Self-employed individuals, business owners, and W-2 employees looking to purchase or refinance a home should consider a bank statement loan program as a potential solution. Complex tax situations, first year of receiving a large bonus or commission with your salary should not prevent the goal of financing a home by strict traditional loan standards.

Available Lending Locations

Although bank statement loans are available across the country, sometimeslending guidelines can vary by state. Understanding the mortgage options available in your state can help you determine how to best begin the loan process. The LTV limits and loan terms can differ slightly depending on local market conditions (natural disaster, high defaults, declining values, etc.).

California is home to one of the most competitive real estate markets in the country, making it challenging for self-employed individuals to secure financing through traditional methods. In California, bank statement loans can offer a way around the restrictive documentation requirements. If you’re based in the Golden State, you may have bank statement loan options available in California to help you secure a mortgage.

Florida’s housing market is booming, but many self-employed individuals and business owners face challenges securing mortgages. If you're looking for a home in Florida, bank statement loans can provide a solution for those who don’t have conventional income documentation. Whether you’re buying a primary residence or an investment property, you may be able to get a bank statement mortgage loan in Florida if you’re planning a purchase or refinance there.

From bustling cities like Austin to more suburban areas, Texas offers a diverse real estate market. If you’re in Texas and find it hard to qualify for a mortgage due to your unique income structure, bank statement loans may be the perfect solution. This loan program helps individuals with non-traditional income sources secure financing in a state with a dynamic housing market. Find non-QM bank statement loan programs offered in Texas and see how they can help you purchase your property.

Bank Statement Loan Alternatives

While Bank Statement Loans are excellent options for many self-employed borrowers, alternatives do exist like:

People are asking

What are the debt to income requirements?+
Lenders calculate your DTI ratio using the qualifying income results from your assets. Most non-QM programs require a DTI below 50% to keep your monthly mortgage payments and other debts manageable based on your calculated income. If debt to income ratios are a determining issue, consider the no debt ratio loan but it requires a 20-percent down payment.
Is it possible to get a bank statement loan with a 10% down payment?+
Yes, some lenders offer Bank Statement Loans with as little as 10% down, though borrowers may receive better terms with a larger down payment.
How do self-employed borrowers qualify for bank statement loans?+
Self-employed borrowers qualify by providing 12–24 months of personal or business bank statements. Non-QM Lenders calculate income based on deposits rather than tax returns, which is ideal for high-income borrowers with write-offs. This approach allows borrowers to focus on qualifying without tax returns when deductions reduce reportable income. In addition, a copy of your business licence/state business name registration or letter from a CPA or licensed tax professional will be required to confirm self-employment in the same industry the last two years. Sometimes an exception is given when you are salaried in the same position prior to converting to self-employment status.
Can multiple accounts be used to qualify for a Bank Statement Loan?+
Yes. Borrowers may use multiple personal and business accounts. Lenders combine deposits to calculate qualifying income, which most traditional mortgages do not allow.
Can savings accounts be used for qualification?+
No. In general, income deposited into savings accounts are not eligible.
Do bank statement loans work for doctors, dentists, lawyers, general contractors, and corporate officers?+
Yes. Doctors, dentists, attorneys, corporate officers, and general contractors with a 25% or more ownership percentage in the business, and other self-employed professionals may qualify.
Can I qualify for a bank statement mortgage if I am a real estate investor or high-commission earners?+
Yes. Real estate agents, investors, 1099 contractors, consultants, and other high-income self-employed professionals may qualify.
What are the consequences of defaulting?+
The consequences of defaulting on a Bank Statement Loan are similar to those of traditional mortgages, potentially resulting in foreclosure. It is crucial to ensure the ability to comfortably afford the payments before committing to any mortgage.

 

Disclosure: Minimum loan amount is $200,000 for residential non-QM loans. Loan guidelines are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify.