What Is a Bank Statement Loan?

Short answer

A bank statement loan is a non-QM mortgage that calculates your income from 12 or 24 months of personal or business bank deposits instead of tax returns. It exists because self-employed people legally write off expenses that make their taxable income look much smaller than their cash flow. Typical users in Miami: contractors, realtors, restaurant owners, truckers, medical practice owners and anyone paid through an LLC.

Definition

A bank statement loan documents income with deposits rather than tax forms. Lenders total eligible deposits over 12 or 24 months, apply an expense factor for business accounts, and divide by the number of months to get qualifying monthly income.

Worked example

A Hialeah general contractor's business account shows $38,000 in average monthly deposits over 24 months, or $912,000 total. The lender excludes a $60,000 loan deposit and a $15,000 transfer from savings, leaving $837,000. The lender's expense factor for construction is 50%: $837,000 x 0.50 = $418,500 net over 24 months, or $17,437 a month in qualifying income. If instead he used 12 months of personal statements showing $9,500 a month of owner draws, the lender would count 100% of that: $9,500 a month. The business statement route qualifies him for a larger loan.

How lenders count deposits

• Personal statements: usually 100% of deposits count, since expenses were already paid from the business.
• Business statements: an expense factor (often 50%, sometimes lower or higher) or a CPA letter stating the actual expense ratio.
• Excluded: transfers between your own accounts, loan proceeds, tax refunds, large one-time deposits without explanation.
• Ownership: you typically need to own at least 25% of the business, documented by a CPA letter or business license.

Trade-offs

Expect a higher rate and larger down payment than a conforming loan, in exchange for qualifying on real cash flow. Credit score, reserves and LTV drive pricing. A broker compares expense factors across lenders, which can change your qualifying income by thousands a month. See bank statement loans and one-year tax return loans. Rates vary daily; call for today's pricing.

In South Florida

Miami-Dade has one of the highest self-employment rates of any large U.S. county, which is why bank statement lending is so common here. Lenders will want to see that deposits match the business type, that large deposits are explained, and that the business has been operating for at least two years (some accept one). Cash-heavy businesses should start depositing consistently at least 12 months before applying. Bank statement loans work for primary homes, second homes and investment properties, including many non-warrantable condos.