What Is a Bank Statement Loan?
A bank statement loan is a Non-QM mortgage that uses your bank deposits — rather than tax returns or W-2s — to verify income. Lenders analyze 12 to 24 months of personal or business bank statements to calculate your qualifying income.
This product exists specifically for self-employed borrowers, business owners, and freelancers whose tax returns understate their actual earning power due to legitimate business deductions.
How Income Is Calculated
Lenders typically use one of two approaches:
Personal Bank Statements
- Sum all deposits over 12 or 24 months
- Divide by the number of months to calculate average monthly income
- An "expense factor" (typically 0–50%) may be applied to account for business costs deposited into a personal account
Business Bank Statements
- Sum all deposits over 12 or 24 months
- Apply an expense factor (typically 50%) to approximate net income
- Divide by the number of months for the qualifying monthly figure
Example (Business Statements, 12 Months)
| Item | Amount |
|---|---|
| Total deposits (12 months) | $360,000 |
| Expense factor (50%) | –$180,000 |
| Net qualifying income | $180,000 |
| Monthly qualifying income | $15,000 |
What Lenders Look For
Beyond the deposit history, lenders evaluate:
- Consistency: Steady monthly deposits are better than a few large, irregular ones
- Source: Deposits should align with your stated business or occupation
- Large deposits: Unusually large, one-time deposits may need to be explained or excluded
- Negative balances: Frequent overdrafts or NSF charges are red flags
- Account age: Using a well-established account is preferred
Typical Program Parameters
| Feature | Typical Range |
|---|---|
| LTV | Up to 80–90% |
| Minimum credit score | 660–700 |
| Statement period | 12 or 24 months |
| Property types | 1–4 units, condos, sometimes 5+ |
| Occupancy | Primary, second home, or investment |
| Entity vesting | Available on some programs |
Bank Statement vs. DSCR
If you're buying an investment property, you may have a choice between a bank statement loan and a DSCR loan. Here's the key difference:
- Bank statement: Qualifies on your personal income (via deposits). The rental income of the property is not the primary factor.
- DSCR: Qualifies on the property's rental income. Your personal income is not considered.
For rental properties with strong cash flow, DSCR is usually simpler. For owner-occupied purchases or properties where DSCR is borderline, bank statement may be the better path.
Tips for a Smooth Process
- 1Use a dedicated business account — co-mingling personal and business funds complicates analysis
- 2Avoid large cash deposits — they're difficult to source and may be excluded
- 3Keep statements clean — no overdrafts, bounced checks, or unexplained transfers
- 4Gather early — download all statements before you apply so there are no surprises
Next Step
Talk to a Prime Advisor to determine if a bank statement loan fits your situation. We'll review your deposits and help you find the best program.