Bank statement loans for self-employed buyers

Who this loan is for

Self-employed people write off everything they legally can, and then a lender looks at the bottom line of the tax return and says no. Contractors, truck owner-operators, salon owners, real estate agents, consultants, and anyone paid on 1099s runs into this. A bank statement loan is a non-QM loan, meaning it sits outside the standard Fannie Mae, Freddie Mac, and government guidelines, and it was designed for exactly this situation.

Most lenders want to see at least two years of self-employment, though some accept less with a longer history in the same line of work.

How the income is calculated

Instead of tax returns, the lender reviews 12 or 24 months of your bank statements and adds up the deposits. With personal statements, deposits are generally counted at face value. With business statements, the lender applies an expense factor, a share taken off the top to account for the cost of running the business, and the size of that factor depends on your industry and the lender. Some lenders will use a letter from your CPA to set it instead.

Large one-time deposits, transfers between your own accounts, and loan proceeds are backed out. What is left, averaged over the period, is your qualifying income. Twenty-four months of statements usually gets better terms than twelve because the lender sees a longer track record.

What to expect on terms

Because the lender is taking on more uncertainty, bank statement loans generally require a larger down payment than an FHA or conventional loan, and the down payment and credit requirements move together: stronger credit, less down. Every lender sets its own numbers. Pricing is typically higher than a conforming loan, and I will show you the difference honestly so you can decide whether it is worth it or whether cleaning up the tax picture for a year and coming back is the better path.

These loans work for primary homes, second homes, and investment properties, and they can be used for a refinance as well as a purchase.

What to bring

Bring the statements first. I can tell you in a day or two roughly what income they support before you apply.

• 12 or 24 months of consecutive bank statements, all pages, for the accounts you want counted
• Proof your business exists and how long it has: a license, a CPA letter, or a listing with the state
• Statements for the accounts holding your down payment and reserves
• If you have a partner in the business, documentation of your ownership share
• A photo ID and permission to pull credit

What happens next

I review your statements before anything goes to a lender so there are no surprises. Then I place the file with a lender whose expense factor and guidelines treat your business fairly, since that varies more than people expect. Once you have your pre-approval, the purchase runs like any other, and I keep the appraisal and underwriting on schedule. If a conventional loan would work with a different look at your returns, I will tell you that too, because it will usually cost you less.

All loans are subject to credit approval, and program terms vary by lender.