Bank statement loans
Bank statement loans for the self-employed.
A bank statement loan is a mortgage for self-employed borrowers that works out a monthly income from the deposits in their bank statements instead of the income on their tax returns. Here is who it suits, the bank statement loan requirements, how deposits are counted, and what to prepare.
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Fidelity Residential · NMLS #103098 · Equal Housing Lender
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- Several self-employed programsWe compare programs to find the rules that fit your business.
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The basics
What a bank statement loan is
A bank statement loan is a mortgage for a self-employed borrower. Instead of tax returns, the lender looks at the deposits in your bank statements over one or two years of consecutive months and works out a monthly income from them.
It can help when your tax returns show less income than your business really brings in, for example after write-offs. Your credit, your housing payment history, the money for the down payment and savings, the appraisal and your debts compared with your income are all still checked.
These loans are not sold to Fannie Mae or Freddie Mac, so each program sets its own rules. For a home you live in, the lender must still make a good-faith decision that you can repay the loan.
Who it suits
- Business owners and sole proprietors
- Consultants and other self-employed professionals
- An established business: most programs want a track record of self-employment, and some accept a shorter one with past work in the same line
Bank statement income is for the self-employed. If you are paid wages or live on savings, see the other documentation options.
Bank statement loans at a glance
- What it is: a mortgage for a self-employed borrower, qualified on the deposits in one or two years of bank statements instead of tax returns.
- Who it is for: self-employed people, usually for two years, whose tax returns show less than the business brings in; not wage earners or people living on savings.
- What you need: complete monthly statements, every page; proof the business exists and is open; a short description of the business; statements for the down payment and closing costs; photo identification.
- How deposits are counted: eligible deposits are totalled, non-business deposits taken out, an expense allowance applied to business statements, and the result averaged by month and multiplied by your share of the business.
- Not: a no-document loan. Income, credit, assets and the home are all verified. The calculator below shows how the deposits you enter would be read; it is an estimate, not what you will qualify for.
The income
How your deposits are counted
The lender adds up the deposits, takes out anything that is not business income, and averages the rest by month. Personal and business statements are treated differently.
| Question | Personal statements | Business statements |
|---|---|---|
| Usually used when | Your business pays you into a personal account, kept separate from the business account | Your business income goes into a business account, or one account holds both personal and business money |
| What is counted | The eligible deposits, usually in full, after transfers, refunds and other deposits that are not business income are taken out | The eligible deposits, less an allowance for business expenses |
| The expense allowance | Not usually applied | A fixed share set by the program, a share based on the type and size of your business, or the share your CPA or licensed tax preparer states, never below the program’s floor |
| Your share of the business | Most programs also ask for a few recent business statements that show the transfers to you | The result is multiplied by your ownership share |
What the underwriter also checks. Whether deposits are rising or falling (a falling trend can mean the lower recent figure is used), any returned or overdrawn items, and whether the result fits the income on your application. A large deposit needs a short letter from you, and it must fit your business.
A worked example, in words. Say you own a small business. Customers pay the business account, the business pays you each month into your personal account, and write-offs make your tax returns show less than the business brings in. You want to buy a home to live in.
- Which statements. Because the business has its own account and pays you from it, a loan officer looks first at your personal statements, where the deposits are usually counted in full, with no expense allowance. A few recent business statements show the transfers to you. Had customers paid straight into your personal account, it would be treated as a business account, with an expense allowance.
- The months. You send one or two years of consecutive monthly statements, every page, as your bank issues them, with proof the business exists and is open and a short description of what it does.
- What comes out. Transfers from your other accounts, refunds, loan money and other deposits that are not business income are taken out. A single large deposit needs a short letter, and it must fit your business.
- The trend. Deposits are compared across the period. When they fall, programs use the more recent months; a seasonal pattern that repeats each year is fine.
- The monthly income. The eligible deposits are averaged by month. That figure is your income for the loan.
- The rest of the file. Your credit, your housing payment history, the money for the down payment and savings, the appraisal and your debts compared with that income are checked, and for a home you live in the lender must make a good-faith decision that you can repay the loan.
The calculator below runs these steps with your own deposits; it is an estimate, not a decision. Paid on 1099 forms instead? See bank statement or 1099 loan. Buying in New Jersey? See bank statement loans in New Jersey.
Calculator
Bank statement income calculator
Enter your deposits and a few facts about your business to see the monthly income a bank statement program would count, with the arithmetic shown step by step. Personal or business statements, 12 or 24 months, and every expense method; or, with no bank statement income at all, your 1099 forms or a profit and loss statement on its own.
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Your statements
Bank statements, or one of the two methods that use no bank statement income: 1099 forms, or a profit and loss statement on its own.
If your business has its own account and pays you from it, answer no.
Add up the deposits on every statement. Or leave this blank and enter the monthly figures below.
Most recent month first, one figure per line. With these, the calculator totals them and checks the trend.
The total of transfers from your other accounts, refunds, loan money, gifts and the like, over the period.
Days the account went negative or a payment bounced.
Your 1099 forms
Most programs accept one year; some prefer two.
Add up every 1099 you received for the year.
Your work expenses as a share of your 1099 income, as you would state them in a short description of your work.
From a recent pay statement, or the deposits on your bank statements. Used to check that the income is still coming in.
Your profit and loss statement
Usually the last 12 months; some programs accept or ask for 24.
Prepared and signed by a CPA, an IRS enrolled agent or a state-registered tax preparer who is independent of the business.
Depreciation, depletion, amortization and casualty losses, as the statement lists them. Most programs add these back.
A few programs add these back; most do not. Shown as a separate figure.
Used to check the expense share and whether your deposits support the statement.
Most programs ask for the latest two or three months of business statements to support the statement.
100 if you own all of it.
Several programs count the lower of this and the bank statement figure.
Your business
100 if you own all of it.
The business’s expenses as a share of its gross receipts.
Used to check that your deposits support the statement.
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This calculator gives estimates for information only, from the figures you enter. It is not a loan application, an approval, a pre-qualification, a rate quote or a commitment to lend, and no rate, payment or fee is shown here. Bank statement programs differ in the months they accept, the expense methods they allow, the share of the business you must own and the limits on returned payments and large deposits; the figures here are the most generous we work with, and an underwriter’s review of your actual statements decides what counts. Bank statement income is for self-employed borrowers; the lender still checks credit, assets, the appraisal and your debts compared with your income.
The methods
How bank statement income is worked out
Every bank statement program starts the same way: add up the eligible deposits over 12 or 24 months and divide by the number of months. What happens next depends on whose statements they are and how the business’s expenses are allowed for. Two more methods, at the end, use no bank statement income at all.
Deposits counted in full
When your business has its own account and pays you from it, the deposits into your personal account are counted in full, with no expense allowance, because the business paid its costs before paying you. Most programs also ask for about two recent months of business statements to show the transfers, and they take out anything that is not business income: transfers from your other accounts, refunds, loan money, wages or rent.
The standard expense allowance
Business deposits still have to pay the business’s costs, so a share is taken off before the rest counts as your income. Many programs take a fixed half; the most generous set the share by the kind of business and its staff: for a service business, 15% with no employees, 30% with one to five and 50% with more than five; for a business that sells goods, 25% with no employees, 50% with one to five and 85% with more than five. Your share of the business is then applied.
An expense letter
If your business spends less than the standard allowance, a CPA, an enrolled agent or a licensed tax preparer who knows the business can state its real expense share in a signed letter. Programs use that share instead, but not below 10%, and the underwriter has to find it reasonable for your line of work. The preparer usually has to be independent of you and to have prepared your returns.
A profit and loss statement
A P&L prepared and signed by a tax professional for the same months can set the income directly: its net income divided by the months, times your share. The deposits have to support it; the most generous programs want deposits of at least 75% of the P&L’s gross receipts, and many want them closer. Some programs use the lower of the P&L figure and the deposit average. A few programs instead count deposits less the business’s own withdrawals; a loan officer can check whether that helps you.
One account for everything
If customers pay straight into your personal account, programs treat it as a business account and apply an expense allowance. Most also want you to own the whole business, and some want the account used for one business only. Keeping a separate business account, and paying yourself from it, usually gives a higher figure.
The 1099 method
For independent contractors and commission earners: the totals on your 1099 forms for one or two years, less an allowance for work expenses, divided by the months. Most programs take 10% off; none when the payer confirms you have no job-related expenses; and some use a ratio you state yourself, never below 10%. With two years, the years are averaged, and when the recent year is lower it is used alone. This year’s earnings and the IRS record of the forms are checked.
1099 loansA statement on its own
For business owners whose statement is prepared by an independent tax professional: the net profit for the period, plus non-cash items such as depreciation, divided by the months and multiplied by your share of the business; most programs need at least a 25% share. Programs usually ask for the latest two or three months of business statements to support the revenue, and a few waive them when the preparer confirms they filed your tax returns.
Profit and loss loansLarge deposits, trends and returned payments
Large deposits. A single deposit above half of your average monthly deposits usually needs a short letter explaining it and showing that it fits your business; a few programs only ask above a full month’s average. If it cannot be explained or sourced, it is left out.
Trends. Deposits are compared across the period. When they fall, programs use the more recent months: on 24 months of statements, the most recent 12. A sharp fall needs a written explanation, and some programs do not accept it. Months with no deposits have to be explained; a seasonal pattern that repeats is fine.
Returned payments and overdrafts. Each one is counted. Most programs accept up to three in 12 months, several up to six when none fell in the last three months, and a few up to twelve, each with an explanation. An overdraft covered automatically from your own linked account, with no fee, usually does not count.
Your share. With business statements, the income is multiplied by the share of the business you own, and most programs need you to own at least a quarter of it. Co-owners who are also on the loan can add their shares together. With personal statements, your share matters less, but the business must still be verified as yours.
What to gather
- 12 or 24 months of statements, consecutive and recent, every page, as your bank issues them (not a transaction printout)
- Two or three recent business statements if you use personal statements
- Proof of ownership and time in business: a tax professional’s letter, an operating agreement, a license or a state filing
- A short business description: what it does, where it works from, how many people it employs
- The expense letter or P&L, if you use one, signed and dated by the preparer
- A note on any large deposit and on any month that looks unusual
Do not send tax returns unless your loan officer asks: in most programs, tax returns in the file turn the loan into a full-documentation loan.
Questions
Questions about the calculation
Is the calculator’s figure what I will qualify for?
No. It is an estimate from the figures you enter, using the most generous rules among the programs we work with. An underwriter reviews your actual statements, takes out deposits that are not business income, applies the program’s own method and checks the trend, returned payments and your ownership. The result is an income figure, not a loan amount, an approval or a decision, and nothing here is a rate quote.
Should I use 12 or 24 months?
Both are widely accepted. If your deposits have been rising, 12 months gives the higher average; if they have been steady or had a strong earlier year, 24 months smooths the figure out. When deposits are falling, programs use the lower, more recent year anyway. Enter your monthly figures and the calculator shows both.
Personal or business statements: which gives the higher figure?
Usually personal statements, when your business has its own account and pays you from it, because the deposits count in full with no expense allowance. Business statements carry an allowance for the business’s costs, unless an expense letter or a profit and loss statement shows the real costs are lower. If customers pay straight into your personal account, it is treated as a business account.
What is the standard expense allowance?
A share of business deposits that stands in for the business’s own costs. Many programs take half regardless of the business; the most generous set it by the kind of business and its staff, from 15% for a one-person service business up to 85% for a larger business that sells goods. The underwriter sets the category from your business description.
How does an expense letter from my CPA help?
It replaces the standard allowance with the business’s real expense share, as stated and signed by a CPA, an enrolled agent or a licensed tax preparer who knows the business and is independent of you. Programs do not accept a share below 10%, and the underwriter must find it reasonable for your line of work. A lower share means more of your deposits count as income.
What counts as a large deposit, and what happens to it?
In most programs, a single deposit above half of your average monthly deposits. You write a short letter explaining it; if it fits your business, it counts, and sourcing is often not needed. If it cannot be explained or does not fit, it is left out. Transfers from your own accounts, refunds, loan money and gifts are never counted, however small.
What if my deposits are falling?
A small dip is normal. When deposits fall over the period, programs use the more recent months: on 24 months of statements, only the most recent 12 count. A sharp fall needs a written explanation, and some programs do not accept it. If a slow season explains it and the pattern repeats each year, say so.
Do returned payments or overdrafts disqualify me?
Not on their own, but they are counted. Most programs accept up to three in 12 months, several up to six when none fell in the last three months, and a few up to twelve, each with an explanation. An overdraft covered automatically from your own linked account, with no fee, usually does not count. Many of them, or recent ones, can make a program unavailable.
Related options
Other ways self-employed borrowers show income
If bank statements are not the right fit, a loan officer can look at these instead.
1099 income
For independent contractors and commission earners. The lender uses your 1099 forms instead of tax returns, takes off a standard allowance for work expenses, and averages the rest by month. Your earnings so far this year and the IRS record of your 1099s are checked.
1099 loansProfit and loss statement
For business owners whose CPA or licensed tax professional prepares and signs a profit and loss statement for the business. The net profit, averaged by month, is the income. A few recent business bank statements are usually requested too.
Profit and loss loansAsset-based loans
For borrowers with substantial savings and investments. You show verified assets instead of pay stubs or tax returns. Your accounts stay yours; the home is the collateral, as with any mortgage.
Asset-based loansSee every option side by side. Our alternative documentation page compares bank statements, 1099s, profit and loss statements, employer verification, assets and rental-income loans for investors.
How it works
The steps to a bank statement loan
Talk about your business
How long you have been self-employed, what share of the business you own, and whether you keep separate business and personal accounts.
Send your statements
Complete monthly statements, every page, plus proof the business exists and is open, and a short description of what it does.
The income is worked out
Deposits are totaled, non-business deposits taken out, the expense allowance applied where it fits, and the result averaged by month.
Underwriting and closing
Credit, savings and the appraisal are reviewed as on any mortgage. You review your closing disclosure and sign.
Documents
Bank statement loan requirements: what to prepare
Bank statements are not the only document. Most borrowers can start with these.
- Complete bank statements, every page, as your bank issues them
- Recent business statements showing transfers to you, if you use personal statements
- Proof of the business, such as a letter from your CPA or tax preparer, a business license or a filing
- A short description of what the business does and how many people it employs
- Statements for the down payment, closing costs and savings after closing
- Photo identification for each borrower
Before you apply: habits that keep the file moving
- Keep business and personal money in separate accounts if you can; mixed accounts are usually treated as business accounts
- Avoid unexplained cash deposits in the months before you apply
- Do not open new credit or make large purchases on credit while your loan is in process
- Keep your business license and filings current, because the business is checked again before closing
- Answer document requests quickly: each day a request waits is a day added to the timeline
The full list, route by route: mortgage documents for the self-employed.
Questions
Common questions about bank statement loans
Do I need to send tax returns?
No. The bank statements take the place of tax returns for your income. 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.
Is my income still verified?
Yes. The lender reviews complete statements, takes out deposits that are not business income, confirms the business is open shortly before closing, and checks your credit, savings and the home’s value.
Should I use personal or business statements?
It depends on how your money moves. If the business pays you into a separate personal account, personal statements are often simpler. If your income stays in a business account, business statements are used with an expense allowance. A loan officer can compare both for you.
Can I refinance or take cash out?
Yes. Bank statement programs allow refinances, including cash-out refinances, within each program’s limits.
Can I buy a second home or a rental property?
Many programs allow a second home, and some allow a rental property. A loan officer can tell you which programs fit the home you have in mind.
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.
What is a bank statement loan?
A mortgage for self-employed borrowers that works out a monthly income from the deposits in their bank statements instead of the income on their tax returns. It is not a no-document loan: your credit, your housing payment history, the money for the down payment and savings, the appraisal and your debts compared with your income are all still checked.
Who can get a bank statement loan?
Self-employed people, usually for two years, whose tax returns show less than the business brings in: business owners, sole proprietors, consultants and other self-employed professionals. Most programs want a track record of self-employment, and some accept a shorter one with past work in the same line. Bank statement income is for the self-employed; if you are paid wages or live on savings, see the other documentation options.
What is the difference between a bank statement loan and a 1099 loan?
The document the income comes from. A bank statement loan works out your income from the deposits in your bank statements, and suits business owners. A 1099 loan works it out from your 1099 forms, and suits independent contractors and commission earners. Neither uses your tax returns for income. See bank statement or 1099 loan.
How are bank statement loan rates set?
This page does not state a rate. These loans are not sold to Fannie Mae or Freddie Mac, so each program sets its own rules, and the terms of your loan depend on your credit, income, the property and underwriting review. A quote gives you a loan estimate with the rate, the APR and every cost in dollars. If your tax returns already show your income well, ask for a standard loan quote as well and compare the two for the same home.
Can my spouse’s paycheck be added?
Often, yes. Many programs let a co-borrower’s wages, documented the usual way, be added to your bank statement income.
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.
What are the requirements for a bank statement loan?
You must be self-employed, usually for two years, and give complete monthly statements for one or two years, personal or business, with proof the business exists and a short description of what it does. Your credit, housing payment history, assets, the appraisal and your debts compared with your income are still checked, and for a home you live in the lender must find you can repay the loan. See what to prepare.
Sources: Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.43: minimum standards for transactions secured by a dwelling, including the ability-to-repay rule (opens in a new tab); Consumer Financial Protection Bureau, What is a Qualified Mortgage? (opens in a new tab). Facts are stated in our own words.
Ready to talk about a bank statement loan?
Get a quote, apply online, or talk it through with a licensed loan officer.
What happens next
- Tell us about your loan. A few quick questions about the property and the loan you want. No credit check to start and no obligation.
- A licensed loan officer reviews your answers and follows up with you, usually within one business day.
- This is a request for a quote, not a loan application and not a commitment to lend.
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.