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Bank Statement Mortgage: How Lenders Calculate Income (2026 Guide)

By Harry Hager, Rockhouse Mortgage, LLC — NMLS #2469785||Financial Education

Bank Statement Guide

Bank Statement Mortgage: How Lenders Calculate Income (2026 Guide)

If you're self-employed, contractor/1099, or a business owner, tax returns often understate your true income. A Bank Statement Mortgage solves that by qualifying you using deposits, not line-by-line tax forms. Below is the practical playbook we use with clients in Virginia, DC, and Maryland.

Quick outcomes
  • You'll know which statements you need (12 vs 24 months).
  • How your qualifying income is derived (expense factors vs CPA P&L).
  • What deposits count (and what gets excluded).
  • Typical credit/LTV/reserve expectations in 2026.
  • A step-by-step checklist so underwriting goes fast.

What is a Bank Statement Mortgage?

A non-QM loan that uses your bank statements to document income:

  • Personal statements → use eligible business deposits into your personal account.
  • Business statements → use gross business deposits then apply an expense factor (or a CPA-prepared P&L) to estimate net income.

No W-2s or tax returns required. Perfect for self-employed buyers and investors (including DSCR alternatives if rental income will carry the loan—ask which path fits best).

12- vs 24-Month Options (and which to pick)

  • 24 months gives the most consistent average and usually qualifies for better pricing.
  • 12 months can work if your last year is strong or you left slow months behind you.

Rule of thumb: if revenue is growing, test 12 months; if revenue fluctuates, 24 months often wins.

How Lenders Calculate Qualifying Income

There are two main approaches:

A) Business Statements → Expense Factor Method

  1. Start with total eligible deposits for the look-back period (12 or 24 months).
  2. Apply an expense factor to approximate net income.
    • Common defaults: 50% for many service businesses.
    • Lower expense factors (e.g., 20–35%) may be allowed with a CPA letter describing your typical expense ratio.
  3. Divide by the number of months to get monthly qualifying income.

Example (Business Account, 12 months):

  • Gross eligible deposits: $420,000
  • Expense factor: 40% (CPA letter)
  • Net income: $420,000 × (1 − 0.40) = $252,000
  • Monthly qualifying income: $252,000 ÷ 12 = $21,000/mo

B) Personal Statements → Business Deposits Only

  1. Identify business-related deposits into your personal account.
  2. Exclude transfers, refunds, loans, Zelle/Venmo between your own accounts, and cash that can't be paper-trailed.
  3. Average over 12 or 24 months.

Example (Personal Account, 12 months):

  • Eligible business deposits: $168,000
  • Monthly qualifying income: $168,000 ÷ 12 = $14,000/mo
    (No expense factor because these are personal deposits of net receipts.)

What Counts (and What Doesn't)

Counts:

  • Customer payments, invoices paid, merchant processor deposits (Stripe/Square), ACH from clients.

Doesn't Count (unless fully documented as business revenue):

  • Transfers between your own accounts (label them clearly).
  • Cash without receipts/source.
  • Loan proceeds, credit card advances, PPP/EIDL remnants, tax refunds.
  • Reversals/chargebacks.
  • One-off gifts.

Pro tip: label your statements (e.g., "TRANSFER FROM SAVINGS") and provide a simple deposit log so the underwriter sees what's income vs. movement.

Credit, LTV, Reserves (typical 2026 ranges)

These vary by lender; here's a realistic band we see:

  • Credit score: ~620–660+ minimum (better pricing ≥ 700).
  • Maximum LTV: up to 90% for primary homes; 85% typical for second home/investment (varies).
  • DTI cap: often 43–50% (program-dependent).
  • Reserves: 3–12 months depending on occupancy, LTV, and profile.
  • Properties: primary, second home, and investment eligible; condos and some non-warrantable scenarios possible with overlays.

We'll match your scenario to the right wholesale lender so you get the best fit, not a one-size-fits-all rule.

Red Flags That Slow Files Down

  • NSF/overdrafts in the look-back period.
  • Large unexplained deposits (have invoices/contracts ready).
  • Commingled accounts (business + personal mixed with frequent transfers).
  • Declining revenue trend (24-month average may still work; we model both).

Required Documents (fastest path)

  • 12 or 24 months of complete, consecutive statements (PDFs directly from the bank).
  • If using business statements: CPA expense factor letter or recent CPA P&L.
  • Driver's license, mortgage statement (if refi), HOI, leases (if investment).
  • Entity docs (LLC/Corporation) if applicable.

Mini-Model: Does Bank Statement Beat Full-Doc Here?

Let's compare two self-employed borrowers needing $600,000:

  1. Full-Doc, tax returns show $7,200/mo after write-offs → DTI borderline at target payment.
  2. Bank Statement, 24-month average = $16,500/mo (after expense factor) → comfortably qualifies.

Result: Bank Statement wins on qualifying and often speed, while preserving your tax strategy.

Want me to run your numbers? I'll model 12 vs 24 months, expense factor options, and payment side-by-side.

FAQs

Does a CPA letter always reduce my expense factor?

Not always, but it often helps. Lenders still sanity-check the ratio against your industry.

Can I combine personal and business statements?

Usually you choose one method. If you have both, we test both and pick whichever qualifies better.

What about DSCR instead?

If the property's rent supports the payment, DSCR can be cleaner. We compare both paths upfront.

Next Steps (2 minutes)

  • Send statements securely and I'll pre-underwrite your income.
  • Get a clear plan before you go under contract or lock a refi.
Start the loan app Grab a time with Harry

Rockhouse Mortgage, LLC (NMLS #2469785). Harry Hager, NMLS #647108. We serve Virginia, DC, and Maryland.