Bank statement loans
Tax returns are built to minimise income; underwriting reads them literally. A bank statement loan qualifies you on deposits instead — and the expense factor a lender applies decides how much of your money counts.
The problem it solves
A self-employed borrower’s tax return is designed to minimise taxable income. Every legitimate deduction — equipment, mileage, home office, depreciation — lowers the number an underwriter uses, and agency underwriting uses that number and no other. The result is routine: a business banking $40,000 a month supports a mortgage application that says $7,000.
A bank statement loan replaces the tax return with the bank account. The lender takes twelve or twenty-four months of statements, totals the deposits, applies an expense factor, and treats the result as income.
How the arithmetic works
The expense factor is where the offers differ, and it is the number to ask about first. A lender might count 50% of deposits as income for a service business with high costs, or 85–90% for a consultancy whose costs are minimal. On $40,000 of monthly deposits that spread is the difference between $20,000 and $36,000 of qualifying income — and, downstream, between two very different loan sizes.
Some lenders accept a letter from your accountant stating the true expense ratio. Some use personal statements, some business, some a mix. Some exclude transfers between your own accounts, and a borrower who moves money regularly can lose qualifying income to that rule alone.
What it costs
This is a non-QM loan: outside the ability-to-repay safe harbour, not saleable to Fannie Mae or Freddie Mac, held or securitised privately. Expect a rate above the conventional market, a larger down payment — 10% to 20% is typical, more for weaker credit — and, frequently, a prepayment penalty.
The register that backs the rest of this site cannot price these loans: it records what a loan does, not how the income was proved. What it does show is the price of the terms these loans usually carry — interest-only periods, prepayment penalties and the rest.
Before you take one
Ask what conventional would need. Two years of returns showing the income is the usual bar. If you are one tax year away, the cost of waiting may be lower than the cost of the loan.
Ask about the prepayment penalty in writing. If the plan is to refinance into a conventional loan once returns catch up, a three-year penalty defeats the plan.
Compare the offer against a conventional one you can actually get, even a smaller one, over the years you would hold it — not over thirty. Points and a higher rate trade off differently once the horizon is realistic.