A complete guide to bank statement mortgage loans for self-employed borrowers and those with non-traditional income documentation.
NMHL Team2026-02-0512 min read
What Is a Bank Statement Loan?
A bank statement loan is a type of non-qualified mortgage that allows borrowers to verify their income using bank statements rather than traditional documentation like tax returns, W-2 forms, and pay stubs. These loans were developed to serve self-employed borrowers, business owners, freelancers, and other professionals whose tax returns may not accurately reflect their true earning capacity. Many self-employed individuals take advantage of legitimate tax deductions that reduce their taxable income on paper, even though their actual cash flow is substantial. Traditional mortgage underwriting relies heavily on adjusted gross income from tax returns, which can make it difficult or impossible for these borrowers to qualify for a mortgage that matches their actual ability to repay. Bank statement loans bridge this gap by analyzing actual deposits into the borrower bank accounts over a period of 12 to 24 months. The lender reviews the statements to calculate average monthly income, which is then used for qualification purposes. These are portfolio loans, meaning the lender keeps them on their books rather than selling them to Fannie Mae or Freddie Mac. As non-QM products, bank statement loans do not have to conform to the same strict guidelines as conventional mortgages, giving lenders more flexibility in underwriting.
Self-employed borrowers often show 30-50% less income on tax returns than they actually earn due to legitimate business deductions. Bank statement loans recognize actual cash flow rather than taxable income.
Key Tips
Start organizing your bank statements 12-24 months before you plan to apply
Separate personal and business bank accounts for cleaner documentation
Avoid large cash deposits that cannot be sourced or explained
Who Benefits from Bank Statement Loans?
Bank statement loans serve a wide range of borrowers who earn good income but struggle to document it through traditional means. Self-employed business owners are the primary beneficiaries. Whether you run a consulting firm, a restaurant, a construction company, or an e-commerce business, your tax returns likely show lower income than your bank accounts reflect due to business expense deductions. Freelancers and gig economy workers, including independent contractors, rideshare drivers, content creators, and consultants, often have variable income from multiple sources that is difficult to document through traditional means. Real estate investors who earn rental income may face similar challenges when depreciation and other deductions reduce their taxable income. Commission-based professionals like real estate agents, insurance agents, and salespeople may have income that fluctuates significantly from year to year. Seasonal business owners, such as those in tourism, landscaping, or tax preparation, may show strong income during peak months but appear lower-earning when averaged across the full year on tax returns. Professionals who recently transitioned from W-2 employment to self-employment may not have two years of self-employment tax returns yet. Bank statement loans can bridge this gap and provide a path to homeownership while the self-employment track record is being established.
Key Tips
If you are newly self-employed, some lenders accept as few as 12 months of bank statements
Having both personal and business bank statements available gives lenders a fuller picture
Consistent monthly deposits strengthen your application more than large irregular deposits
How Income Is Calculated
Lenders use a specific methodology to calculate qualifying income from bank statements. For personal bank statements, the lender typically adds up all deposits over the statement period, usually 12 or 24 months, and calculates the average monthly deposit amount. This average becomes your qualifying monthly income. Certain deposits may be excluded from the calculation, including transfers between your own accounts, one-time deposits like insurance payouts or tax refunds, and any deposits that cannot be reasonably sourced. For business bank statements, the process is slightly different. The lender calculates total deposits and then applies an expense factor to account for business costs. This expense factor, also known as the expense ratio, is typically set at a percentage based on your industry. For example, a service-based business might have a 50 percent expense factor, meaning the lender uses 50 percent of total deposits as qualifying income. A business with higher overhead, like a retail operation, might have a higher expense factor applied. Some lenders allow you to provide a CPA letter or profit and loss statement to justify a lower expense ratio than the default for your industry. This can significantly increase your qualifying income. The number of months required varies by lender, with 12-month and 24-month programs being most common. Twelve-month programs are convenient but may have higher interest rates, while 24-month programs often offer better terms.
The expense factor applied to business bank statements significantly impacts your qualifying income. A CPA letter documenting your actual expense ratio can help maximize the income a lender will count.
Key Tips
Ask your CPA to prepare a letter detailing your actual business expense ratio
Choose the statement period that shows your strongest and most consistent income
Large one-time deposits may need letters of explanation to be included in calculations
Requirements and Rates
Bank statement loans have different requirements than conventional mortgages, reflecting their non-QM status. Credit score requirements typically start at 620, though the best rates are available to borrowers with scores of 720 or higher. Down payment requirements range from 10 to 25 percent, with most lenders requiring at least 10 percent for loan amounts up to $1.5 million and 15 to 25 percent for larger amounts. Interest rates on bank statement loans are typically 0.50 to 1.50 percent higher than comparable conventional loan rates. The exact premium depends on your credit score, down payment, loan amount, and the lender specific pricing. A borrower with a 750 credit score and 25 percent down will receive rates much closer to conventional pricing than a borrower with a 640 score and 10 percent down. Loan amounts generally range from $100,000 to $3 million, with some lenders offering programs up to $5 million. Both purchase and refinance transactions are available. Debt-to-income ratios are typically capped at 50 percent, which is actually more generous than many conventional programs. Cash reserves of 3 to 12 months of mortgage payments are usually required, with higher reserves expected for larger loan amounts and lower credit scores. Prepayment penalties may apply, typically lasting 1 to 3 years, though some lenders offer programs without prepayment penalties at a slightly higher rate.
Key Tips
A larger down payment can significantly reduce your interest rate on a bank statement loan
Compare rates from at least three non-QM lenders as pricing varies considerably
Ask about prepayment penalty terms and whether a no-penalty option is available
Tips for a Successful Application
Preparing thoroughly for a bank statement loan application increases your chances of approval and better terms. Start by reviewing your bank statements for the past 24 months and identifying your strongest 12 or 24-month period. Look for months with consistent deposits and minimal large unexplained transactions. Separate your personal and business finances if you have not already. Comingled funds make it harder for lenders to calculate income accurately and can delay the underwriting process. Open a dedicated business account and use it consistently for all business transactions. Reduce or eliminate cash deposits, as these are often excluded from income calculations because they are difficult to source. If cash is a significant part of your business, discuss this with potential lenders early to understand how they handle it. Work with a CPA who understands mortgage lending to prepare supporting documentation. A detailed profit and loss statement and a letter confirming your business operations and expense ratio can strengthen your application. Pay down existing debts to improve your debt-to-income ratio and increase your purchasing power. Even small improvements in your DTI can make a meaningful difference. Save for a larger down payment if possible, as this not only improves your rate but also increases lender confidence. Finally, choose a mortgage broker or lender who specializes in non-QM lending. These specialists understand the nuances of bank statement programs and can match you with the best option for your situation.
Key Tips
Clean up your bank statements by minimizing transfers and large unexplained deposits
Build a relationship with a CPA who can prepare mortgage-specific documentation
Work with a broker who has access to multiple non-QM lenders for the best pricing
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Frequently Asked Questions
Most lenders offer 12-month and 24-month bank statement programs. The 24-month option typically provides better rates and terms because it gives the lender a longer view of your income consistency. Some lenders offer 6-month programs for borrowers with very strong credit and large down payments, but these usually carry higher rates.
Yes, many lenders allow you to use personal bank statements, business bank statements, or a combination of both. Business bank statements are subject to an expense factor that reduces the qualifying income to account for business costs. Personal bank statements generally use 100 percent of deposits as income. Your lender can advise which approach maximizes your qualifying income.
Bank statement loan rates are typically 0.50 to 1.50 percent higher than comparable conventional rates. The premium depends on your credit score, down payment, and loan amount. Well-qualified borrowers with high credit scores and large down payments will see rates closer to conventional pricing, while borrowers with lower qualifications will pay a larger premium.
Some bank statement loans include prepayment penalties that last 1 to 3 years. These penalties are typically 1 to 2 percent of the loan balance if you pay off the loan early. Many lenders offer options without prepayment penalties at a slightly higher interest rate. Always ask about prepayment terms before committing to a loan.
Yes, bank statement loans are available for investment properties, including single-family rentals and multi-unit properties. Investment property bank statement loans typically require a larger down payment of 20 to 30 percent, higher credit scores, and carry slightly higher interest rates than primary residence programs.
