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How is Income Determined for a Bank Statement Loan?

How is income determined for a bank statement loan? My husband and I are both self-employed and want to know if we can use a bank statement program to qualify for a mortgage.

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Based on the information you provided, I think you could be a good candidate for a bank statement mortgage. As the name suggests, bank statement programs enable borrowers to qualify for a mortgage based on their bank statements instead of their tax returns and W-2s.  In short, deposits into your bank account serve as income when you apply for a mortgage. As long as regular deposits appear on your bank statements, you should be able to qualify for the mortgage assuming the deposits enable you to afford the monthly payment, property tax and insurance.

The more steady the deposits and income, the better from the lender's standpoint. In most cases co-applicants who are both self-employed provide statements for multiple bank accounts, including both personal and business accounts.  We provide a comprehensive overview of bank statement mortgages on FREEandCLEAR.

Many bank statement programs only require twelve months of statements to verify your income although some programs may require 24 months. Lenders average your monthly gross income over the time period for the bank statements you provide. For example, if your statements for the past twelve months show a total of $36,000 in deposits then your monthly gross income is $3,000 ($36,000 / 12 months = $3,600 in average monthly income). The lender uses this gross monthly income figure as well as your monthly debt expense to determine what size mortgage you qualify for.

It is important to highlight that while it can be helpful, the deposits into your account do not need to occur on a monthly basis.  For example, you may deposit $6,000 into your bank account every two months, for a total of $36,000 per year.  In this case, the gross income figure used by the lender is still $3,600 even though the deposits are made bi-monthly ($6,000 x 6 = $36,000 / 12 = $3,600).  This point is especially important for applicants with seasonal employment who experience fluctuations in their income and bank deposits over the course of the year.

The only case when lenders do not use your average monthly gross income over the specified time period is if your recent deposits declined significantly and the drop was not caused by job seasonality.  In this scenario the lender usually uses the more recent, lower deposit amounts as your gross income when you apply for the mortgage which means you qualify for a lower loan amount. 

The downsides of a bank statement loan are that lenders typically charge a higher mortgage rate plus the qualification guidelines can be more restrictive in other areas. For example, bank statement loans usually require a down payment of at least 10% and require a higher minimum credit score. If your credit profile is borderline this is definitely a point to consider when you speak with lenders.

As a first step, I recommend that you contact multiple lenders to understand how they would handle your personal situation.  We advise you to contact at least five lenders as qualification guidelines vary, especially for bank statement mortgags. When you speak with lenders you can determine if you qualify for a standard self-employed borrower mortgage program or if a bank statement program is a better financing option for you.

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You can also use our FREEandCLEAR Lender Directory to search for lenders by state, lender type and loan program. For example, you can search for lenders in your state that offer bank statement loans or mortgages for self-employed borrowers.

Finally, we also provide an overview of how to get a mortgage if you are self-employed that you can review.

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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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