Bank statement loan vs 1099 loan
A bank statement loan works out a self-employed borrower’s income from the deposits in their bank statements. A 1099 loan works it out from the 1099 forms an independent contractor or commission earner is paid on. Neither uses your tax returns for income; which fits depends mostly on how you are paid.
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Compare with your own figures
One calculator works your income out both ways. Then talk it through with a licensed loan officer.
- Bank statement and 1099 income calculator
- The bank statement loan guide
- The 1099 loan guide
- Call 732-686-9999
Fidelity Residential · NMLS #103098 · Equal Housing Lender
Deposits or forms: how your pay reaches you
Both loans help self-employed people whose tax returns show less than they really earn, for example after write-offs. They differ in the document the lender starts from.
A bank statement loan starts from your deposits. The lender adds up the eligible deposits, takes out anything that is not business income, applies an expense allowance to business statements, and averages the rest by month. A 1099 loan starts from the totals on your 1099 forms, takes off a standard allowance for work expenses, and averages the rest by month.
Neither is a no-document or stated-income loan. Your credit, your savings, the appraisal and your debts compared with your income are checked on both, and for a home you live in the lender must make a good-faith decision that you can repay the loan.
At a glance
- Bank statement loan: for business owners and other self-employed borrowers; income from the deposits in complete monthly statements, personal or business.
- 1099 loan: for independent contractors, freelancers, gig workers and commission earners; income from the 1099 forms themselves.
- Both: no tax returns for income; credit, savings, the appraisal and your debts still checked.
Bank statement loan and 1099 loan compared
The questions that separate the two ways of showing self-employed income.
| Question | Bank statement loan | 1099 loan |
|---|---|---|
| How income is shown | The deposits in your bank statements: eligible deposits added up, non-business money taken out, an expense allowance applied to business statements, and the rest averaged by month | The totals on your 1099 forms, less a standard allowance for work expenses, averaged by month |
| Who it suits | Business owners, sole proprietors, consultants and other self-employed professionals with an established business | Independent contractors, freelancers, gig workers and commission earners, such as real estate agents, paid on IRS Form 1099 |
| What you send | Complete monthly statements, personal or business, every page; proof the business exists and is open; a short description of the business | Your recent 1099 forms; a recent pay statement or bank statements showing the income is still coming in; permission for the lender to obtain the IRS record of your 1099s |
| What the lender checks | Whether deposits are rising or falling, any returned payments, a short letter for any large deposit, and your share of the business; then credit, savings, the appraisal and your debts | That the income is still coming in this year and that the forms match the IRS record; then credit, savings, the appraisal and your debts |
| Track record | An established record of self-employment; some programs accept a shorter one with past work in the same line | A steady history in the same line of work; a recent move from employee to contractor with the same company can be accepted |
| Property types | The home you live in; many programs allow a second home, and some a rental property | Primary homes, second homes and rental properties, with the largest financing on a primary home |
| Typical uses | Buying a home, refinancing, or taking cash out | Buying or refinancing a home, including a first home |
| Your tax returns | Not used for income; if tax returns go into the file, the loan usually has to be reviewed as a full-documentation loan | Not used; the 1099 forms take their place |
When a bank statement loan fits better
When you run a business and your pay reaches you as deposits.
- You own the business. Owners, sole proprietors and self-employed professionals whose customers pay the business, not payers who send 1099 forms.
- Your business pays you into a separate account. When the business has its own account and pays you from it, the deposits into your personal account are usually counted in full.
- Your real expenses are lower 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.
- Your business is seasonal. Deposits are averaged by month, and a seasonal pattern that repeats each year is fine; you explain any month with no deposits.
- You want to take cash out. Bank statement programs allow refinances, including cash-out refinances, within each program’s limits.
When a 1099 loan fits better
When the people who pay you send 1099 forms.
- You are paid on 1099 forms. Independent contractors, freelancers, gig workers paid through a platform or an agency, and commission earners such as real estate agents.
- Your work expenses are small. A standard allowance for work expenses is taken off the 1099 total, and sometimes none when the payer confirms you have no job-related expenses.
- You recently moved from employee to contractor. A move to contractor with the same company can be accepted, because the work and the employer are the same.
- A spouse or co-borrower earns wages. Their regular wage income can be added to your 1099 income, documented the usual way.
- You are buying your first home or a rental. First-time buyers can use a 1099 loan, and primary homes, second homes and rental properties are all possible.
How to choose between them
Look at how you are paid
1099 forms from the people you work for point to a 1099 loan. Customers paying your own business point to bank statements.
Look at your accounts
A separate business account that pays you is often simpler. If customers pay into one account for everything, it is treated as a business account.
Weigh your expenses
Each method takes off an allowance for costs. If your real costs are lower, ask whether an expense letter from your tax preparer would help.
Run it both ways
The bank statement income calculator has a 1099 method, so you can compare the two figures before you talk to a loan officer.
Questions about bank statement and 1099 loans
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.
I am paid on 1099 forms and deposit the money in my bank. Which should I use?
Either may work, so it is worth seeing both figures. The bank statement income calculator has a 1099 method, and a loan officer can work your income out both ways and tell you which programs fit.
Do I need to send tax returns for either loan?
No. On a bank statement loan the statements take the place of tax returns for your income; if tax returns go into the file, the loan usually has to be reviewed as a full-documentation loan. On a 1099 loan the forms take their place, and the lender obtains the IRS record of your 1099s to confirm them.
Is my income still verified?
Yes, on both. For a bank statement loan the lender reviews complete statements and takes out deposits that are not business income. For a 1099 loan the lender checks that the income is still coming in this year and matches the IRS record. Credit, savings and the home’s value are checked on both.
Can I buy a second home or a rental property with either?
With a 1099 loan, primary homes, second homes and rental properties are all possible, with the largest financing on a primary home. With a bank statement loan, 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.
Are there other options for self-employed borrowers?
Yes. A profit and loss statement prepared and signed by your CPA or licensed tax professional can set the income, and asset-based loans look at verified savings and investments instead. Our alternative documentation page compares them all.
Not sure which way to show your income?
Get a quote, apply online, or ask a licensed loan officer to work your income out both ways.
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.
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