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AnswerWhat's a bank statement loan?
A bank statement loan qualifies a self employed borrower from the deposits into their bank account over a period, typically twelve or twenty four months, with an expense factor applied to arrive at a usable income figure. It exists because conventional underwriting reads net income after write offs, which understates what many business owners genuinely earn. It's not a no documentation loan and it's not a way around underwriting. There's a credit review, an appraisal, reserve expectations and a full file; the difference is which document answers the income question. It generally prices higher than a conventional loan and often expects more money down, so it's the right answer when the returns don't support the purchase, and the wrong answer when they do.
The test for whether it fits you is straightforward. If your tax returns show roughly the income you actually make, a conventional loan is almost always the better structure. If your returns understate your earnings because you deduct aggressively and legitimately, the bank statement route measures the same business more accurately.
The expense factor is the piece borrowers are least prepared for. The lender doesn't simply total your deposits; it applies a factor to account for the cost of running the business, and the resulting figure is what qualifies you. Which factor applies depends on the type of business and the documentation supporting it.
Expect to supply consistent statements for the full period, and expect transfers between your own accounts to be identified so they're not double counted. Clean, consistent business banking makes this loan dramatically easier, which is an argument for separating business and personal accounts long before you need a mortgage.
It's a residential loan like any other in every respect other than the income calculation, and the same compliance and underwriting apply. The only real question is which measure tells the truth about your business.
Expect the lender to want evidence the business is real and yours: a business license, a CPA letter, a website, sometimes all three. That's not an obstacle so much as the substitute for the tax return that would otherwise have done that job.
Two practical habits make this loan dramatically easier, and both take effect months before you apply. Run business income through a business account rather than a personal one, and avoid moving money between your own accounts in ways you'd struggle to explain later. Underwriters aren't suspicious of transfers; they just have to identify them, and a clean statement is the difference between one week and three.
A bank statement loan isn't an easier loan. It's a more accurate one, for a specific kind of borrower whose returns were written for a different purpose.Dillon Baker, VP of Mortgage Lending at Rate
More questions about this
Not here? Text it to 317-847-6869 and Dillon answers himself.
How many months of statements do I need?
Usually twelve or twenty four, depending on the program. Consistency across the period matters as much as the totals.
Is a bank statement loan more expensive?
It generally prices higher than a conventional loan and often expects more money down. Right answer when the returns don't support the purchase, wrong one when they do.
Can I use personal accounts?
Business income running through a business account makes the file far simpler. Mixed personal and business banking is workable and it adds time, because every transfer has to be identified.
Ask Dillon about your situation
Text 317-847-6869 with the address or the question. He answers his own phone, evenings and weekends too.
Text 317-847-6869 or call, if you would rather skip the form.
