Bank Statement Loan

How Bank Statement Loans Work

Instead of using tax returns to calculate qualifying income, the lender analyzes deposits in the borrower's bank statements over a defined period. For personal bank statements, the lender typically reviews of statements and calculates average monthly deposits as income. For business bank statements, an expense factor (often , depending on the industry) is applied to the gross deposits to estimate net income available for debt service.

This approach benefits self-employed borrowers, independent contractors, and business owners who take significant tax deductions that reduce their adjusted gross income on tax returns below their actual cash flow.

Qualification Requirements

Bank statement loans generally carry stricter requirements in areas other than income documentation:

• Credit score - minimums typically range from , higher than some conventional programs
• Down payment - commonly or more
• Reserves - often of PITI required
• Interest rates - generally higher than comparable conventional rates due to the non-QM risk classification
• Self-employment history - borrowers typically must demonstrate in the same business or industry

Considerations

Because bank statement loans are non-QM products, they are not eligible for purchase by Fannie Mae or Freddie Mac. They are held in portfolio by the originating lender or sold to private investors. This means terms, qualification criteria, and availability vary significantly between lenders. Borrowers should compare multiple offers and understand that the higher interest rate reflects the reduced documentation standard, not necessarily higher actual risk. Bank statement loans are a legitimate financing option for borrowers with strong cash flow that is not fully reflected on their tax filings.