Bank statements
For business owners and other self-employed borrowers. The lender works out a monthly income from the deposits in your personal or business bank statements instead of your tax returns.
Bank statement loans
Alternative documentation loans
Alternative documentation loans: other ways to show your income.
Alternative documentation loans are non-QM (non-qualified mortgage) home loans that prove your income with bank statements, 1099 forms, a profit and loss statement, an employer’s form or your assets, instead of tax returns. Here are the documentation options for business owners, contractors and others whose tax returns do not show their real income, and how each one works.
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- Many ways to documentWe compare programs to find the one that fits how you earn.
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The basics
What alternative documentation means
Being self-employed does not mean you cannot get home financing.
Most home loans prove income with pay stubs, W-2 forms and tax returns. Alternative documentation programs, also called alt doc or low doc loans, prove it another way: with bank statements, 1099 forms, a profit and loss statement, a form your employer completes, or your savings and investments.
These loans are not sold to Fannie Mae or Freddie Mac, so each program sets its own rules. Your income is still verified, and for a home you live in the lender must still make a good-faith decision that you can repay the loan.
What every option still checks
- Your credit and how you have paid for housing
- The money for the down payment, closing costs and savings after closing
- The home’s value, through an appraisal
- Your ability to repay, through your debts compared with your income or, on some asset programs, your assets after closing
Your options
The documentation options
Which one fits depends on how you earn, how your money moves, and the home you want to buy or refinance.
1099 income
For independent contractors, freelancers, gig workers and commission earners paid on IRS Form 1099 rather than a W-2. The lender uses the 1099 forms themselves instead of tax returns, takes off a standard allowance for work expenses, and checks that the income is still coming in this year and the IRS record of your 1099s.
1099 loansProfit and loss statement
For self-employed borrowers whose profit and loss statement is prepared by an independent tax professional, normally a CPA, an IRS enrolled agent or a state-registered tax preparer. The net profit, adjusted for your share of ownership and for non-cash items, is the income; in most programs the latest two or three months of business bank statements are asked for too.
Profit and loss loansEmployer verification
For salaried or hourly employees whose employer confirms their job, start date and pay in writing on the standard verification form, in place of pay stubs, W-2s and tax returns. The lender sends the form and receives it back directly, and re-confirms the job before closing. Mainly for the home you live in.
Employer verification loansAsset-based loans
For borrowers with substantial savings and investments. You show verified assets instead of pay stubs or tax returns, and they stay in your accounts. The home is the collateral, as with any mortgage.
Asset-based loansOutside the standard rules
For borrowers who document income the usual way but fall outside agency rules: for example higher debts compared with income, a recently started business, a credit event too recent for agency loans, or a condominium the agencies will not finance. Some residency statuses are eligible.
A worked example, in words. Say you run a small contracting business. Customers pay into the business account, and write-offs make your tax returns show less than the business brings in. You want to buy a home to live in.
- Pick the documentation. Your income shows most clearly in your deposits, so a loan officer looks first at a bank statement loan. If you are also paid on 1099 forms, or your tax professional prepares a profit and loss statement, those options are compared too.
- The statements. You send one or two years of consecutive monthly statements, every page, personal or business, with proof the business exists and a short description of what it does.
- The income. Deposits that are not business income, such as transfers from your other accounts, refunds and loan money, are taken out. On business statements, a standard expense allowance comes off, or the real expense share that your tax professional states in a signed letter. What is left becomes a monthly income figure.
- The rest of the file. Your credit, how you have paid for housing, the money for the down payment, closing costs and savings after closing, and the appraisal are checked as on any mortgage.
- Repayment. Your debts are compared with that income, and for a home you live in the lender must still make a good-faith decision that you can repay the loan.
The bank statement income calculator shows the arithmetic with your own figures; it is an estimate, not a decision. Paid on 1099 forms instead? See bank statement or 1099 loan.
For real estate investors
Rental-income (DSCR) loans
A loan on a rental property qualified on the property’s own rent instead of your personal income. No tax returns or pay stubs; credit, assets and the appraisal are still checked. For business purposes only.
The lender compares the expected rent with the property’s full monthly payment, including taxes, insurance and any association dues. You sign a statement that the loan is for business purposes and that no one on the loan will live in the property.
See how DSCR loans work.
Often a fit when
- The property’s rent is the clearest picture of what it can carry
- You hold title in your own name or in a limited liability company
- You already own rentals; most programs want some landlord experience
Business purpose investor loans are for investment property only. See all investment property loans.
Compare
The options at a glance
| Option | Often used by | What shows the income |
|---|---|---|
| Bank statements | Business owners and other self-employed borrowers | Deposits in personal or business bank statements |
| 1099 income | Independent contractors and commission earners | 1099 forms, with earnings so far this year |
| Profit and loss | Business owners with a CPA or licensed tax professional | A profit and loss statement the professional prepares and signs |
| Employer verification | Salaried and hourly employees | A written verification your employer sends to the lender |
| Asset-based | Borrowers with substantial savings and investments | Verified balances in savings, investment and retirement accounts |
| Outside the standard rules | Borrowers just outside agency rules | Pay stubs and W-2 forms, or tax returns, as usual |
| Rental-income (DSCR) | Real estate investors, for business purposes only | The property’s rent, not your personal income |
How it works
The steps to an alternative documentation loan
Talk about how you earn
Your work or business, how you are paid, the accounts you keep, and the home you want to buy or refinance.
Choose the documentation
A loan officer matches the way you document income to a program whose rules fit your file.
Apply and document
The documents for your option, plus statements for the down payment, closing costs and savings, and photo identification.
Underwriting and closing
An underwriter checks the file against the program’s rules and the appraisal. You review your closing disclosure and sign.
How to apply: what you need
Start with a quote, the online application or a call. Most borrowers can gather these first; your loan officer then confirms the list for your option.
- Photo identification for each borrower
- Complete statements, every page, for the accounts that hold your down payment, closing costs and savings after closing
- Proof your business exists and is open, such as a letter from your CPA or tax preparer, a business license or a filing, if you are self-employed
- A short description of the business and how many people it employs
- Your purchase contract once you have one, or your current mortgage statement on a refinance
- The papers for your option: one or two years of bank statements; your 1099 forms and proof of earnings so far this year; a profit and loss statement your tax professional prepares and signs; or statements for each account you want counted. For employer verification the lender sends the form to your employer and receives it back directly.
On a bank statement loan, do not send tax returns unless your loan officer asks: if tax returns are in the file, the loan usually has to be reviewed as a full-documentation loan instead. The full list, route by route: mortgage documents for the self-employed.
Questions
Common questions about alternative documentation
Is my income still verified?
Yes. Each option verifies income or assets in its own way: complete statements, IRS records of 1099 forms, a signed statement from a tax professional, or a form sent by your employer straight to the lender. Credit, savings and the home’s value are checked as on any mortgage.
Can a co-borrower with a regular paycheck apply with me?
Often, yes. Many programs let a co-borrower’s wages, documented the usual way, be added to your bank statement or 1099 income. A loan officer can check how your program combines them.
Can I use these options for a second home or a rental?
Many bank statement, 1099 and profit and loss programs allow a second home, and some allow a rental property. Employer verification is mainly for a home you live in. Investors buying a rental can also look at DSCR loans.
I do not have a regular income. Is there an option for me?
Bank statement, 1099 and profit and loss loans are for people who are working. If you have substantial savings and investments, an asset-based loan may fit instead.
How do I apply for an alternative documentation loan?
Start with a quote, the online application or a call to 732-686-9999. A loan officer asks how you earn and how your money moves, matches that to a documentation option and a program whose rules fit your file, and gives you the documents list for that option. You send them with statements for the down payment, closing costs and savings, and photo identification. See what you need.
Which documentation option should I choose?
The one that shows your income most clearly. Deposits into your accounts point to bank statements; pay on 1099 forms points to a 1099 loan; a profit and loss statement your CPA or licensed tax professional prepares points to that option; a salary your employer will confirm points to employer verification; and substantial savings and investments point to an asset-based loan. A loan officer can compare more than one for your file; see bank statements, 1099 forms or assets.
Is an alternative documentation loan a no-document loan?
No. Income or assets are verified on every option, only with documents other than tax returns, and your credit, savings and the home’s value are checked as on any mortgage. For a home you live in, the lender must still make a good-faith decision that you can repay the loan.
Is an alternative documentation loan the same as a non-QM loan?
It is one kind of non-QM (non-qualified mortgage) loan. A non-QM loan sits outside the federal standards for how a qualified mortgage is built and documented, and showing income without tax returns is one of the reasons. Non-QM also covers borrowers who document income the usual way but fall outside agency rules; see full documentation non-QM loans.
How long do I need to have been self-employed?
Usually two years. Bank statement and profit and loss programs generally look for about two years in business, and some accept a shorter record when you have past work in the same line. Most 1099 programs want about two years in the same line of work, and a recent move from employee to contractor with the same company can be accepted.
Do I need to send tax returns?
Not on these options: bank statements, 1099 forms, a profit and loss statement, your employer’s form or your assets take their place. On a bank statement loan, if tax returns are in the file, the loan usually has to be reviewed as a full-documentation loan instead, so tell your loan officer which route you want.
Can I refinance or take cash out?
Yes. These options can buy a home or refinance the one you have, and bank statement programs allow refinances, including cash-out refinances, within each program’s limits. Ask a loan officer which programs allow cash out on your option.
What if I have had a bankruptcy or foreclosure?
Programs set a waiting period after events such as a bankruptcy, foreclosure or short sale, and the period differs by program. Tell your loan officer the dates so the right program can be chosen. See how lenders treat a past credit event.
Do you lend in my state?
Fidelity Residential is licensed in many states. The full, current list is on NMLS Consumer Access (opens in a new tab), or call us at 732-686-9999.
Sources: Consumer Financial Protection Bureau, What is a Qualified Mortgage? (opens in a new tab); Consumer Financial Protection Bureau, What is the ability-to-repay rule? (opens in a new tab). Facts are stated in our own words.
Not sure which option fits?
Get a quote, apply online, or talk it through with a licensed loan officer.
Business purpose investor loans are for investment property only.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.
Reviewed by Robert Shamie, CEO, NMLS #241428 · Last reviewed:
Fidelity Residential (PFN Lending Group, Inc., NMLS #103098) is a direct mortgage lender licensed in 40 states and the District of Columbia, with 26 years in business.