A bank statement loan allows self-employed borrowers to qualify for a mortgage using 12 to 24 months of personal or business bank statements instead of traditional tax returns and W-2s.
The lender averages your monthly deposits to determine your qualifying income. This is ideal for business owners who write off significant expenses and show lower taxable income than their actual cash flow.
Typical requirements include 10% to 15% down and a credit score of 660 or higher. Interest rates are typically higher than conventional loans.
How Bank Statement Loans Work
You provide 12 or 24 months of bank statements from your personal or business accounts. The lender reviews all deposits and averages them over the period. They exclude transfers between accounts, gifts, and other non-recurring deposits. The resulting average becomes your monthly income for qualification purposes.
Income Calculation Methods
Lenders use two main approaches. The first averages all deposits and applies a 50% add-back for business expenses. The second uses only deposits after subtracting clear business expenses. Some lenders use the gross deposits method, which is more favorable for borrowers with many business deductions.
Typical Requirements
Minimum credit score: 660 to 680. Down payment: 10% to 20%. The business must have been operating for at least 2 years. You must provide business license or CPA letter as proof of self-employment. Some lenders require 20% down for loan amounts over a certain threshold.
Rates and Costs
Bank statement loan rates are typically 1% to 2% higher than comparable conventional loans. Closing costs are similar to standard mortgages. Some lenders charge a slightly higher origination fee for the additional underwriting work. Rate quotes vary significantly between lenders, so shopping around is important.
Pros and Cons
Pros: no tax returns needed, qualifies based on actual cash flow, ideal for self-employed and business owners, accessible with reasonable credit. Cons: higher rates, larger down payments required, not all lenders offer them, documentation requirements can be specific to each lender.
When to Use a Bank Statement Loan
Use a bank statement loan when your tax returns do not reflect your true income, when you are self-employed and have been in business for at least 2 years, or when you want to avoid the complexity of tax return underwriting. It is also useful when you have significant business deductions that lower your AGI.