What Is a Bank Statement Loan? How These Mortgages Work
A bank statement mortgage lets self-employed borrowers use bank deposits, not tax returns, to prove income and qualify for a home loan.
A bank statement loan, also called a bank statement mortgage, is a home loan that lets eligible self-employed borrowers qualify using 12 to 24 months of bank statements instead of tax returns, W-2s, or pay stubs. Lenders review recurring deposits, look for stable cash flow, and apply their own non-QM guidelines to estimate qualifying income.
These loans are commonly used by business owners, freelancers, 1099 contractors, and commission-based borrowers whose tax returns may not fully reflect what they actually earn. If you want to know how a bank statement mortgage works, who it fits, and what lenders usually require, this guide walks through the basics.
What Is a Bank Statement Loan?
A bank statement mortgage loan is a unique loan product that caters to self-employed borrowers who may not qualify for traditional mortgage financing.
Rather than relying on conventional income verification documents, such as tax returns, W-2s, and pay stubs, this type of loan uses bank statements to verify a potential borrower's income.
Lenders will typically look through 12 to 24 months' worth of statements to assess your cash flow and ability to repay the loan. To do this, they will look at average deposits going into your account and use that information to calculate your income.
That means consistent, well-documented cash flow in your bank statements may help support a mortgage application when tax returns do not fully reflect your income pattern.
This approach offers a more comprehensive and accurate reflection of your financial situation, especially for those with irregular income patterns and those who like to take advantage of write-offs during tax season.
Who Is a Bank Statement Mortgage Best Suited For?
Due to its flexible income verification, bank statement loans are an excellent choice for individuals with unconventional earning patterns, such as:
Self-employed borrowers
Small business owners
1099 Independent contractors such as freelancers, gig workers, consultants, etc.
Sales professionals and those who work solely on commission
Seasonal workers
What are the Requirements to Get a Bank Statement Mortgage Loan?
Bank statement mortgages are generally offered as non-qualified mortgage, or non-QM, loans, which means they fall outside standard agency underwriting frameworks. Because of that, there is no single industry-wide rule for credit score, debt-to-income ratio, or down payment across all bank statement programs. Each lender sets its own guidelines and overlays. For background on qualified mortgages and ability-to-repay rules, see the CFPB's mortgage resources. Most lenders will typically want to see:
Bank Statements: Since this is the key component for verifying your income, you'll need to have between 12-24 months of business or personal bank statements.
Good Credit: Non-QM lenders generally set a minimum credit score for this product, and a higher score typically leads to better terms and rates. Ask your lender what their specific minimum is, as it can differ by lender and loan program.
Debt-to-Income (DTI) Ratio: Lenders want to ensure that you'll be able to make your monthly payments on time and responsibly, and your DTI is a good reflection of that. Maximum DTI thresholds vary by lender, so confirm the specific limit with whoever is underwriting your loan.
Down Payment: Down payment requirements for bank statement loans are generally higher than for conventional financing, and the exact amount will depend on your lender, credit profile, and overall financial picture.
Personal Asset Statements: Many lenders require at least two months' worth of personal asset statements in order to verify your liquid assets.
Your driver's license: Your driver's license is needed in order to confirm your personal identification.
For those who are self-employed or run their own business, you will also be required to provide a certified CPA letter stating your percentage of ownership, how long you have been in business, and that your business is active and in good standing.
How to Increase Your Odds of Securing a Bank Statement Mortgage Loan
If you want to have the best possible chance of securing a bank statement loan with the best rates and terms, then you should strive to:
Get Your Credit Score as High as It Can Be
Not surprisingly, your credit score is one of the most crucial factors that affect your mortgage application. You want this number to be as high as you can, as a higher score is a signal to lenders that you're a responsible borrower.
To get your credit score in the best shape possible, we recommend:
Paying bills on time and in full when you can
Have a low revolving credit utilization
Avoid closing accounts unless absolutely necessary
Working with a specialist to repair your credit
Maintain Stable Financial Accounts
Since you'll be using your bank statements to prove your income, it's imperative that you establish your bank account as soon as possible so you can start building a proof of stable income.
Lenders appreciate stability, and having steady financial accounts can work to your advantage. To achieve this:
Avoid making large, unusual deposits that cannot be explained or documented
Try to keep your income consistent, if possible
Don't suddenly switch banks
Regularly monitor your accounts for any errors or discrepancies
Always keep a positive balance in your account to avoid insufficient funds/overdrafting
Have The Necessary Documentation Ready to Go
Preparation is key in the mortgage application process. It's always better to be overprepared than underprepared. For this type of loan, you should have these documents ready to go before you fill out the application:
Full bank statements, including blank pages
Certified CPA letter
Personal asset statements
Any other documents that show proof of income
Partner with an Experienced Lender
Navigating the landscape of specialized loan products such as bank statement mortgage loans calls for an experienced guiding hand. It's essential to collaborate with a lender who is experienced in handling these kinds of loans.
Such a lender can significantly simplify the process in the following ways:
They use a personalized approach. Experienced lenders have a deep understanding of the unique financial circumstances faced by entrepreneurs, contractors, and other non-traditional borrowers. They are well-equipped to handle these situations and provide tailored solutions.
They provide valuable guidance. Their wealth of experience translates into invaluable advice and guidance that can substantially improve your chances of loan approval. You can rely on them to guide you through the application process and ensure you're well-prepared.
They help you find competitive rates and terms. Experienced lenders go beyond merely securing the loan, they seek out competitive rates and terms. They'll utilize their knowledge and connections within the industry to help match you with terms that fit your financial situation.
Example: How a Lender May Estimate Income From Bank Statements
Bank statement loans are not underwritten one identical way at every lender, but the basic idea is similar: the lender reviews eligible deposits over a set period, averages them, and applies any expense treatment required by the program.
Item | Example |
|---|---|
Statement period reviewed | 12 months |
Total eligible deposits | $240,000 |
Average monthly deposits | $20,000 |
Expense factor used by lender | 50% |
Estimated qualifying income | $10,000 per month |
In this example, a borrower with $240,000 in eligible deposits over 12 months averages $20,000 per month. If the lender applies a 50% expense factor, the estimated qualifying income would be $10,000 per month. Some programs may use a CPA letter or profit and loss documentation to support a different expense treatment, so the exact calculation depends on the lender's guidelines.
Frequently Asked Questions
Do bank statement loans require tax returns?
Many bank statement mortgage programs are designed for borrowers who want to qualify without using tax returns as the primary income document. That said, lenders may still ask for other records, such as a CPA letter, business documentation, or asset statements, depending on the file.
How many bank statements do you need for a bank statement mortgage?
Many lenders review 12 to 24 months of bank statements. Some programs allow either personal or business statements, while others have stricter rules about which accounts can be used and how deposits are analyzed.
What do lenders look for on bank statements?
Lenders usually look for recurring deposits, stable cash flow, and any large or unusual deposits that need to be explained. They may also review overdrafts, negative balances, and whether the statements support the income being claimed on the application.
Who is a bank statement mortgage best for?
These loans are often a fit for self-employed borrowers, small business owners, freelancers, consultants, and commission-based workers whose tax returns may show substantial write-offs or uneven income from month to month.
Talk Through Your Bank Statement Loan Options
Modern Day Lending offers bank statement loans for self-employed borrowers. Our team can review your statements, explain how a lender may calculate your qualifying income, and compare your self-employed mortgage options before you apply.
Ready to see where you stand? Contact our team of experts to talk through your scenario.
