A bank statement loan qualifies you on the deposits that actually hit your bank account — typically 12 or 24 months of them — instead of the net income reported on your tax returns. It exists for one reason: self-employed borrowers who write off aggressively look far poorer on paper than they are in real life, and conventional underwriting reads that paper literally.
If your business is healthy but your tax returns say otherwise, start here.
What a bank statement loan is
It’s a mortgage where income is calculated from bank deposits rather than tax documents. No tax returns. No W-2s. No pay stubs.
Two things to be clear about:
- It’s a full mortgage, not a shortcut. Credit, assets, reserves, and the property are underwritten normally.
- It’s a non-QM loan — it sits outside the Qualified Mortgage rules that govern conventional and government loans, so these loans are held by portfolio and private investors rather than sold to Fannie Mae or Freddie Mac. Only the income documentation is unusual.
Business owners, contractors, consultants, real estate agents, truckers, restaurant and salon owners, and tradespeople are the typical fit. The 12/24 Month Bank Statement Loan program is built around exactly this.
Why self-employed borrowers get declined on conventional loans
Your CPA’s job is to legally minimize your taxable income. Mileage, equipment, home office, phone, travel, depreciation — every legitimate deduction lowers the number at the bottom of your return. An underwriter’s job on a conventional loan is to qualify you on that same bottom number.
So a contractor who collects $400,000 in gross receipts and writes off $280,000 in legitimate expenses shows about $120,000 of net income. The underwriter adds back a few non-cash items, averages over two years, and divides by 12. That’s the qualifying income — not what you deposited.
You weren’t declined because your business is weak. You were declined because the document being measured was built to show a small number.
How deposits are actually analyzed
An underwriter works through your statements line by line:
- Eligible deposits count. Customer payments, client checks, merchant settlements, contract payments, ACH from platforms you work through.
- Ineligible deposits are stripped out. Transfers between your own accounts, loan proceeds, gifts, tax refunds, insurance payouts, credit card cash back, one-time asset sales.
- Large or irregular deposits get questioned and need an explanation and a paper trail.
- What’s left is totaled and averaged across the 12- or 24-month window.
Overdrafts and NSF activity matter too — a history full of returned items undercuts the premise that deposits represent stable income.
Personal vs. business bank statements
Personal statements are typically used by sole proprietors who deposit revenue personally, or by owners who only want their draws counted. Because that money is generally assumed to already be net of business costs, a high percentage of deposits is usually counted.
Business statements show gross revenue before operating costs, so an expense factor is applied to back those costs out.
If you own the business with partners, qualifying income is generally limited to your ownership percentage — a 50% owner gets credit for roughly half the deposits.
The expense factor, explained simply
The expense factor — sometimes called the expense ratio — is the lender’s estimate of how much of your business deposits gets consumed running the business:
Gross monthly deposits × (1 − expense factor) = qualifying monthly income
Apply a 50% factor to $40,000 in average monthly deposits and qualifying income is $20,000. Apply a 30% factor and it’s $28,000.
Where the factor comes from varies:
- A fixed default, commonly around 50%, applied across the board.
- A CPA or licensed tax preparer letter stating your actual expense ratio. If your true overhead is lower than the default, this one document can meaningfully raise your qualifying income. It’s the most underused piece of paper in the process.
- A prepared profit-and-loss statement, used alongside statements or on its own through a P&L Only program.
Factors vary by lender, industry, and entity type — a staffing agency and a solo consultant don’t carry the same overhead.
12 months vs. 24 months
Choose 12 months when income is trending up, you recently expanded, or the prior year had a rough patch you’d rather not average in.
Choose 24 months when income is stable or seasonal and a longer window smooths out slow quarters. Longer documentation periods are generally viewed as lower risk.
Simple rule: if your last 12 months beat your 24-month average, the shorter window usually produces higher qualifying income.
What documentation you still need
No tax returns” is not “no paperwork.” Expect to provide:
- 12 or 24 months of bank statements — all pages, including blank ones.
- Proof the business exists and has history — business license, Secretary of State registration, EIN letter, articles of organization, or a CPA letter. Most programs want roughly two years of self-employment, though some make room for a recent transition from W-2 work in the same field.
- A CPA or tax preparer letter covering ownership percentage and expense ratio.
- Photo ID, two months of asset statements, and standard property documents — contract, appraisal, insurance, title.
Bank statement vs. conventional documentation
| Requirement | Conventional Loan | Bank Statement Loan |
|---|---|---|
| Personal tax returns | Typically 2 years | Not required |
| Business tax returns | Typically 2 years if 25%+ owner | Not required |
| IRS transcripts (Form 4506-C) | Typically required | Generally not used for income |
| W-2s / pay stubs | Required if applicable | Not required |
| Bank statements | 2 months, assets only | 12 or 24 months, for income |
| CPA letter | Occasionally | Common; often raises qualifying income |
| Business license / entity docs | Sometimes | Typically required |
| Income calculation | Net income after write-offs, plus add-backs, averaged over 2 years | Eligible deposits, less an expense factor |
| Credit, assets, reserves, appraisal | Fully underwritten | Fully underwritten |
Property types, occupancy, and general guidelines
These programs are generally available for primary residences, second homes, and investment properties — single-family, condos, townhomes, and small multi-unit — on purchases, rate-and-term refinances, and cash-out refinances.
As general guidelines that vary by lender and borrower profile: credit requirements typically start in the low-to-mid 600s; down payment guidelines typically begin around 10% for a primary residence and increase for second homes and investment properties; debt-to-income limits typically fall in the 43%–50% range; and reserves are typically required and increase with loan size. All of this is subject to underwriting approval and can change without notice.
Who this is not right for
- You qualify fine on tax returns. If documented net income supports the purchase, a conventional loan is the simpler path.
- You’ve been self-employed under two years with no prior history in the same line of work.
- Your deposits don’t reflect your revenue — heavy cash business, or income you can’t document.
- You’re buying purely as an investor. A DSCR investor loan qualifies on the property’s rent instead.
- Most of your income arrives on 1099s. A 1099 Mortgage Loan Program is usually cleaner.
What to expect in the process
- A conversation first — deposits, ownership structure, credit — to decide whether 12 or 24 months tells your better story.
- Document collection. This is the heaviest week.
- Income analysis. Deposits averaged, expense factor applied, qualifying income established.
- Underwriting. Conditions will come back. Plan on sourcing a few deposits.
- Appraisal, clear to close, closing. Well-prepared files move quickly, though timelines vary.
Before you apply: separate your business and personal accounts, stop making round-number transfers between them, and ask your CPA whether they’ll write an expense ratio letter. Then get in touch.
Frequently asked questions
Do bank statement loans require tax returns at all? No. Income comes from deposits, and tax returns aren’t used to qualify. A lender may still request a CPA letter or business license to confirm the business exists and how long it has operated.
Will my write-offs still hurt me? No — that’s the entire point. Deductions on your return have no effect on your deposit history, so a business that nets little on paper can still qualify on what it actually collects.
Can I use both personal and business statements? Often, though many programs want you to pick one account type as the income source to avoid counting the same dollars twice. Transfers from business to personal are excluded as internal movement.
What if I have overdrafts or NSF items? A few isolated items are usually explainable. Frequent overdrafts are a real problem, because they suggest deposits aren’t reliably covering obligations.
Should I stop taking write-offs and qualify conventionally instead? Talk to your CPA first. Cutting deductions raises your tax bill, and that cost can outweigh the mortgage benefit. These programs exist so you don’t have to make that trade.
Brett Stevens, NMLS #2012483 | New American Funding, LLC, NMLS #6606 | Equal Housing Opportunity
Brett Stevens is individually licensed to originate residential mortgage loans in New Jersey, Pennsylvania, North Carolina, and Florida. New American Funding, LLC is licensed in all 50 states; loans outside Brett’s licensed states can be referred to a licensed colleague.
This article is for general educational purposes and is not a commitment to lend or an offer to extend credit. All loan programs, guidelines, and terms described are general in nature, subject to underwriting approval, and subject to change without notice. Not all applicants will qualify. Program parameters vary by lender, property type, occupancy, and borrower profile. Nothing here constitutes tax, legal, or financial advice — consult your own CPA, attorney, or financial advisor regarding your specific situation.